Financial Analysis of Tcs and Tech Mahindra

ACCOUNTS PROJECT Submitted By Kriti Singh Roll No 236 fragment-D, LBSIM, Delhi 1. ) Calculation of proportions (All figures used For calculation ar in Rs crores) Liquidity ratios 1. reliable symmetry approach pattern Current dimension=Current Assets /Current Liability Current proportionality of TCS For 2012 23275. 09/10465. 01 = 2. 224 For 2011 17036. 41/7246. 03 = 2. 3511 Current proportion of technical school Mahindra For 2012 19809/17007 = 1. 16475 For 2011 18412/15295 = 1. 20379 2. Quick Ratio Formula Quick Ratio= Quick Current Assets/Current Liability Quick Ratio of TCSFor 2012 23257. 32/10465. 01 = 2. 223 For 2011 17013. 59/7246. 03 = 2. 347 Quick Ratio of technical school Mahindra For 2012 19807/17007 = 1. 16463 For 2011 18406/15295 = 1. 20339 3. coin ratio Formula Cash Ratio of TCS For 2012 6003. 37/10465. 01 =0. 5736 For 2011 4700. 85/7246. 03 =0. 648 Cash Ratio of technical school Mahindra For 2012 1389/17007 = 0. 081 For 2011 1938/15295 = 0. 126 leverage Ra tios 1. Debt-Assets Ratio Formula Debt to Assets = tot up debt / fit assets Debt-Assets Ratio of TCS For 2012 116. 26/41394. 49 =0. 0028 For 2011 69. 27/32681. 04 =0. 0021Debt-Assets Ratio of Tech Mahindra For 2012 11266/63454 = 0. 177 For 2011 11827/60804 =0. 194 2. Debt righteousness Ratio Formula Debt to Equity Ratio =(Short Term Debt + Long Term Debt)/Tangible N. W. Debt to Equity Ratio of TCSFor 2012 116. 26/29840. 13 =0. 003 For 2011 69. 27/24651. 22 =0. 002 Debt to Equity Ratio of Tech Mahindra For 2012 11266/34369 = 0. 327 For 2011 11827/33810 =0. 349 3. Interest coverage Ratio Formula Interest Coverage Ratio =(EBIT) / occupy.Interest coverage Ratio of TCS For 2012 13945. 54/22. 23 =627. 32 For 2011 11047. 1/26. 48 =417. 18 Interest coverage Ratio of Tech Mahindra For 2012 7494/1025 =7. 3112 For 2011 9173/1113 =8. 2416 4. total Debt Ratio Formula Total Debt Ratio = Total Debt / Capital Employed Total Debt Ratio of TCS For 2012 116. 26/30929. 48 =0. 00375 For 2011 6 9. 27/25435. 01 =0. 0027 Total Debt Ratio of Tech Mahindra For 2012 11266/46447 = 0. 425 For 2011 11827/45509 =0. 259 legal action Ratios 1. roll disorder Ratio Formula Inventory employee turnover Ratio = Cost of Goods Sold/Inventory Cost Inventory turnover Ratio of TCSFor 2012 35398. 69/ 17. 77 =1992. 04 For 2011 26907. 89/22. 82 =1179. 132 Inventory turnover Ratio of Tech MahindraFor 2012 46638/2 =23319 For 2011 42861/6 =7143. 5 2. Receivables turnover Ratios Formula Receivable Turnover Ratio = Sales/ Accounts Receivable Receivables turnover Ratio of TCSFor 2012 48893. 83/11520. 35 =4. 244 For 2011 37324. 1/8194. 97 =4. 554 Receivables turnover Ratio of Tech MahindraFor 2012 52430/12431 =4. 217 For 2011 49655/9643 =5. 149 3. Payable turnover Ratios Formula Payable Turnover Ratio = Cost/ Average Payables Payable turnover Ratio of TCSFor 2012 35398. 69/ 3247. 87 =10. 89 For 2011 26907. 89/2572. 33 =10. 46 Payable turnover Ratio of Tech MahindraFor 2012 46638/4684 =9. 956 For 201 1 42861/3034 =14. 126 4. rigid assets turnover Ratios Formula laid assets turnover Ratios = Sales/ Fixed Assets Fixed assets turnover Ratios of TCS For 2012 48893. 83/6564. 97 =7. 4 For 2011 37324. 51/5440. 98 =6. 85 Fixed assets turnover Ratios of Tech Mahindra For 2012 52430/8153 =6. 430 For 2011 49655/6608 =7. 5143 5. Total assets turnover Ratios Formula Total assets turnover Ratios = Sales/ Total Assets Total assets turnover Ratios of TCS For 2012 48893. 83/11520. 35 =4. 244 For 2011 37324. 51/8194. 97 =4. 554 Total assets turnover Ratios of Tech Mahindra For 2012 52430/63454 =0. 826 For 2011 49655/60804 =0. 816 Profitability Ratios 1. PBIT Ratio Formula PBIT Ratio = EBIT/Sales PBIT Ratio of TCS For 2012 13945. 54/48893. 83 =0. 285 For 2011 11047. 1/37324. 51 =0. 959 PBIT Ratio of Tech Mahindra For 2012 7494/52430 =0. 1429 For 2011 9173/49655 =0. 1847 2. PBT Ratio Formula PBT Ratio = EBT/Sales PBT Ratio of TCS For 2012 13923. 31/48893. 83 =0. 284 For 2011 11020. 62/37324. 51 = 0. 2952 PBT Ratio of Tech Mahindra For 2012 5790/52430 =0. 1104 For 2011 8060/49655 =0. 1623 3. PAT Ratio Formula PAT Ratio= EAT/Sales PAT Ratio of TCS For 2012 10413. 4/48893. 83 =0. 212 For 2011 9068. 04/37324. 51 =0. 242 PAT Ratio of Tech Mahindra For 2012 4606/52430 =0. 0878 For 2011 6967/49655 =0. 1403 4. ROA Ratio Formula ROA Ratio= EBIT/ Total Asset ROA Ratio of TCS For 2012 13945. 4/41394. 49 =0. 336 For 2011 11047. 1/32681. 04 =0. 338 ROA Ratio of Tech Mahindra For 2012 7494/63454 =0. 118 For 2011 9173/60804 =0. 15 5. roe Ratio Formula ROE Ratio= EAT/Stockholders Equity ROE Ratio of TCS For 2012 10413. 4/29840. 13 =0. 348 For 2011 9068. 04/24651. 22 =0. 367 ROE Ratio of Tech Mahindra For 2012 4606/34369 =0. 134 For 2011 6967/33810 =0. 206 Analysis of Ratios Liquidity Ratios Ratio TCS Tech Mahindra 2012 2011 2012 2011 Current Ratio 2. 224 2. 3511 1. 16475 1. 20379 Quick Ratio 2. 2223 2. 347 1. 16463 1. 20339 Cash Ratio 0. 5736 0. 648 0. 081 0. 126Ideal up-to-date ratio is 21. In pillow slip of TCS in both(prenominal) years accredited ratio is almost equal to it. It means company has just the sufficient amount of current assets. In case of Tech Mahindra, Current ratio is less than it in both the years. But it is still greater than 11. So the company still has sufficient assets to pay its short term obligations. Quick assets means current assets inventory prepaid exp. So, it is more conservative measure. Ideal degraded ratio is 11. It shows that TCS and Tech Mahindra find very less current investments in terms of inventories and prepaid expenses so the ratios are almost equal to the current ratios.Cash ratio is most conservative measure of three as it comprises only cash and marketable securities. TCS keeps more current assets in cash than Tech Mahindra. Leverage Ratios Ratio TCS Tech Mahindra 2012 2011 2012 2011 Debt Assets ratio 0. 0028 0. 0021 0. 177 0. 194 Debt To Equity Ratio 0. 003 0. 002 0. 327 0. 349 Interest Coverage Ratio 627. 32 417. 18 7. 3112 8. 2416 Total Debt Ratio 0. 00375 0. 0027 0. 2425 0. 259 Analysis of a libertines capital structure is essential to evaluate its long-term risk and return prospects. Debt assets ratio implies portion of total debt in capital structure of a company.The more this ratio is the more risky company is because make up of debt is always greater than cost of equity. So, it is preferred to pee-pee more amount of equity than debts. For both TCS and Tech Mahindra, debt ratio is good enough though TCS has better debt ratio. Interest coverage ratio measures the protection addressable to creditors as the extent to which earnings available for interest cover interest expenses. In case of both companies in both years debt holders are secured as enough profit is available with secure but in case of TCS debt holders are very much secured.Payment of interest on debentures is always preferred to payment of dividends on equity and preference shares. Activity ratios Ratio TCS Tech Ma hindra 2012 2011 2012 2011 Inventory Turnover Ratio 1992. 04 1179. 132 23319 7143. 5 Receivables Turnover Ratio 4. 244 4. 554 4. 217 5. 149 Payable Turnover Ratio 10. 89 10. 46 9. 956 14. 126 Fixed Assets turnover Ratio 7. 44 6. 85 6. 430 7. 5143 Total Assets Turnover ratio 1. 18 1. 142 0. 826 0. 816 Activity ratios describe the relationship between the firms sales/cost of goods sold and the assets needed to sustain operating activities.The full(prenominal)er(prenominal)(prenominal) the ratio, the more efficient the firms operations as relatively few assets are required to maintain a granted level of operation. Inventory turnover ratio measures the efficiency of the firms inventory management. A higher ratio means inventory does not remain in warehouses for long time. In both years Tech Mahindra has higher ratio than TCS has. Since both are software companies, need for inventory is very less. Hence the ratios are so high. Receivable turnover ratio measures the efficiencies of th e firms credit policies and indicate the level of investment in receivables needed to maintain the firms sales level.The higher this ratio, the lesser the boundary in which debtors pays money. Its almost similar for both the companies for 2011-12. For 2010-11, Tech Mahindra is slightly out front in comparison to TCS in this parameter . It implies that Tech Mahindra gives credit to its customer for lesser time period than TCS does. In 2010-11 average out credit time given by TCS is 365/4. 554=80 days approx. while by Tech Mahindra is 365/5. 149=70 days. Payable turnover ratio implies the time duration by and by which company makes payments to its creditors. The higher ayable turnover ratio, the earlier company makes payments to its creditors. TCSs payable turnover ratio is slightly better than that of Tech Mahindra in 2011-12. For 2010-11, Tech Mahindra has better payable ratio than TCS as it makes payment to its creditors earlier. Fixed assets turnover ratio measures the efficie ncy of long-term investment. This ratio reflects the level of sales generated by investment in production force and shows the efficiency level of fixed assets. The higher this ratio means more productive and efficient are fixed assets or long-term investments.From table it is light(a) that investments of TCS are slightly more productive than of Tech Mahindra for 2011-12 but it was reverse by almost the same amount for 2010-11. Total assets turnover ratio considers total assets instead of only current assets so it measures over every last(predicate) efficiencies of all assets (current fixed). TCS has a better ratio than Tech Mahindra has. Profitability Ratios Ratio TCS Tech Mahindra 2012 2011 2012 2011 PBIT Ratio 2. 224 2. 3511 0. 1429 0. 1847 PBT Ratio 0. 284 0. 2952 0. 1104 0. 1623 PAT Ratio 0. 212 0. 242 0. 0878 0. 1403 ROA 0. 336 0. 338 0. 118 0. 150 ROE 0. 48 0,367 0. 134 0. 206 This is the most important ratio because both shareholders and stakeholders profit/gain depends on profitability of company. These ratios measures profitability in terms of % of sales. Debenture holders are much concerned about PBIT(profit originally interest and levy) as they are paid interest out of it, government is more concerned about PBT(profit before appraise) as it charge tax on this profit, shareholders are more concerned about PAT(profit after tax) as they are paid dividends on the basis of it. For both the companies there is a little transmute in these ratios over the previothemyear.Also profitability of TCS is more than Tech Mahindra. ROA measures the managements ability and efficiency in using the firms assets to generate profits and it broods the total return accruing to all providers of capital(debt and equity) while ROE considers amount available for distribution to shareholders. Both ROA and ROE are undoubtedly better for TCS than those of Tech Mahindra. TCS is giving superb rate of return on equity to its shareholders as 33-34 % in last two years while tha t for Tech Mahindra is 15-17%. The relationship between ROA and ROE reflects the firms capital structure. 2. Horizontal, erect and gallery Analysis Items selected For horizontal, vertical and trend analysis are Items TCS Tech Mahindra 2012 2011 2012 2011 Shareholders Fund 29579. 23 24504. 81 34432 33840 Inventory 17. 77 22. 82 2 6 Fixed Assets 6564. 97 5440. 98 8153 6608 Cash and bank eternal sleep 6003. 47 4700. 85 1389 1938 Creditors 3247. 87 2572. 33 4684 3034 Debtors 11520. 35 8194. 97 12431 9643 Total assets/liabilities 41394. 49 32681. 04 63454 60804 Vertical Analysis In vertical analysis Auditors calculate portion of one item in total assets/liabilities in terms of percentages.Items TCS Tech Mahindra 2012 2011 2012 2011 Shareholders Fund 71. 45 74. 98 54. 26 55. 65 Inventory 0. 042 0. 069 0. 003 0. 009 Fixed Assets 15. 85 16. 64 12. 848 10. 86 Cash and bank balance 14. 5 14. 38 2. 18 3. 18 Creditors 7. 846 7. 871 7. 381 4. 9 Debtors 27. 83 25. 07 19. 59 15. 85 Horizont al Analysis In horizontal analysis Auditors calculate % change in an item over a base year. Here Auditors are considering 2009-10 as base year and will calculate % change. Items TCS Tech Mahindra 2012 2011 2012 2011 Shareholders Fund 95. 29 nose candy 97. 50 100Inventory 60. 87 100 33. 33 100 Fixed Assets 95. 25 100 118. 30 100 Cash and bank balance 100. 83 100 68. 55 100 Creditors 99. 68 100 150. 63 100 Debtors 111. 01 100 123. 59 100 Trend Analysis For TCS For Tech Mahindra 3. Suggestions i. Creditors Since the debt ratios are less, there is a lot of assets and equity backing for the debts. Its a safe bet to lend to both of these companies. ii. Banks and monetary institutions Interest Coverage ratio is high. So lending to these companies is a safe thing to do. (More so to TCS which has excellent Interest Coverage Ratio) iii.Investors Both the companies have high ROE. So its a good option to invest in them. Returns of TCS are as high as 34-36% while that of Tech Mahindra are 15 -17%. iv. organisation revenue benefits can be tightened a bit. Because with the proportion of sales tax appears to be less. PBT and PAT ratios for both the companies are almost equal. v. counseling Crediting policies should be changed a bit. Because software industry being a intangible industry cant rely much on low recievables turnover ratio. 4. cleans report Policies TCS Fixed Assets Fixed assets are stated at cost, less accumulated depreciation / amortization.Costs include all expenses incurred to bring the asset to its present location and condition. Fixed assets unpack computers and other assets individually costing 50,000 or less which are not capitalized except when they are part of a larger capital investment program. wear and tear / Amortization Depreciation / amortization on fixed assets, other than freehold land and capital work-in-progress is charged so as to write-off the cost of assets, on the pastime basis Type of asset Method Rate / Period Leasehold land a nd buildings Straight cable television Lease period Freehold buildings Written down value 5%Factory buildings Straight notation 10% Leasehold improvements Straight line Lease period give and machinery Straight line 33. 33% Computer equipment Straight line 25% Vehicles Written down value 25. 89% Office equipment Written down value 13. 91% Electrical installations Written down value 13. 91% Furniture and fixtures Straight line 100% Intellectual property / distribution rights Straight line 24 60 months Rights under licensing agreement Straight line License period Fixed assets purchased for specific projects are depreciated over the period of the project. InvestmentsLong-term investments are stated at cost, less provision for other than temporary decline in value. Current investments, except for current maturities of long term investments, comprising investment in mutual funds are stated at the dispirit of cost and fair value. Inventories Raw materials, sub-assemblies and component s are carried at the lower of cost and net realisable value. Cost is determined on a weighted average basis. Purchased goods-in-transit are carried at cost. Work-in-progress is carried at the lower of cost and net realisable value. Stores and spare parts are carried at cost, less provision for obsolescence.Finished goods produced or purchased by the Company are carried at lower of cost and net realisable value. Cost includes direct material and labtheir cost and a proportion of manufacturing overheads. Tech Mahindra Fixed Assets including intangible assets Fixed assets are stated at cost less accumulated depreciation. Costs comprise of purchase price and attributable costs, if any. Depreciation / amortization of fixed assets (i) The Company computes depreciation of all fixed assets including for assets taken on lease using the straight line method based on estimated useful lives.Depreciation is charged on a pro rata basis for assets purchased or sold during the year. Managements est imate of the useful life of fixed assets is as follows Buildings 28 years Computers 3 years Plant and machinery 5 years Furniture and fixtures 5 years Vehicles 3-5 Years Office Equipments 5 years (ii) Leasehold land is amortised over the period of lease. (iii) Leasehold improvements are amortised over the period of lease or expected period of occupancy whichever is less. (iv)Intellectual property rights are amortised over a period of seven years. (v) Assets costing upto Rs 5,000 are fully depreciated in the year of purchase. vi)The cost of software purchased for internal use is capitalized and depreciated in full in the month in which it is put to use. Investments Long term investments are carried at cost. Provision is made to recognise a decline other than temporary in the carrying amount of long term investment. Current investments are carried at lower of cost and fair value. Inventories Components and parts Components and parts are valued at lower of cost and net realizable value . Cost is determined on First-In-First fall out basis. Finished Goods Valued at the lower of the cost or net realisable value. Cost is determined on First-In-First Out basis. . ) let on Highlights TCS a. ) Auditors extend 1. Auditors have scrutinizeed the attached coalesced Balance Sheet of TATA CONSULTANCY SERVICES LIMITED (the Company) and its subsidiaries (collectively referred as the TCS host) as at March 31, 2012,the Consolidated literary argument of Profit and Loss and the Consolidated Cash Flow Statement for the year stop on that date, both annexed thereto. These financial statements are the responsibility of the Companys management and have been prepared by the management on the basis of separate financial statements and other financial tuition regarding components.Their responsibility is to express an panorama on these financial statements based on their audit. 2. Auditors conducted their audit in accordance with the auditing standards generally judge in India. Those Standards require that Auditors plan and perform the audit to induce reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the papering principles used and significant estimates made by the management, as wellspringhead as evaluating the overall financial statement presentation. Auditors believe that their audit provides a reasonable basis for their opinion. 3. Auditors did not audit the financial statements of certain subsidiaries whose financial statements reflect total assets (net) of 4825. 13 crores as at March 31, 2012, total revenues of 7601. 89 crores and net cash inflow amounting to 514. 17 crores for the year ended on that date.These financial statements and other financial information has been audited by other auditors whose reports have been furnished to us, and the ir opinion in so faraway as it relates to the amounts included in respect of these subsidiaries is based solely on the report of other auditors. 4. Auditors report that the unite financial statements have been prepared by the Companys management in accordance with the requirements of the Accounting Standard (AS) 21, Consolidated financial Statements ordained by the Central Government under Section 211 (3C) of the Companies Act, 1956 and other recognized accounting practices and policies. 5.Based on their audit and on consideration of the separate audit reports on the individual financial statements of the Company and the aforesaid subsidiaries and other financial information of the components, and to the best of their information and according to the explanations given to us, Auditors are of the opinion that the attached consolidated financial statements give a true and fair look in conformity with the accounting principles generally accepted in India (i) in the case of the Con solidated Balance Sheet, of the state of affairs of the TCS Group as at March 31, 2012 (ii) in the case of the Consolidated Statement of Prof t and Loss, of the profit of the TCS Group for the year ended on that date and (iii) in the case of Consolidated Cash Flow Statement, of the cash flows of the TCS Group for the year ended on that date. b. ) Management Discussion The Companys strategy to support longer term growth is to continually extend the core IT operate line of products by expanding its geographical reach, industry coverage and servicing capabilities and by deepening existing client elationships, building or acquiring emerging businesses and adopting or creating hot business models and business solutions. Risks The Company has put in place an Enterprise-wide Risk Management (ERM) programme based on the Committee of Sponsoring Organisations of the Treadway Commission (COSO) framework. embraces are placed before the mesa of Directors at regular intervals. The risk man agement mold is continuously improved and adapted to the changing global risk scenario. The agility of the risk management process is monitored and reviewed for appropriateness with the changing risk landscape. The process of continuous evaluation of risks includes taking stock of the risk landscape on an event driven as well as quarterly basis.The risk categories covered under the ERM programme includes strategic, operational and financial as well as compliance-related risks across respective(a) levels of the organisation. This includes risk perspicacity and mitigation at the company level, business / functional unit level, relationship level and project level. c. ) Corporate Governance Effective corporate governance practices take form the strong foundations on which successful commercial enterprises are built to last. These practices are categorised through with(predicate) principle based standards and not just through a framework enforced by regulation. It develops through adoption of ethical practices in all of its dealings with a wide group of stakeholders encompassing regulators, employees, shareholders, customers and vendors.Strong leadership and strong corporate governance practices have been the Companys hallmark and it has inherited these from the Tata culture. The Company will handle to focus its resources, strengths and strategies to achieve its vision of becoming a truly global leader in software services, while upholding the core determine of excellence, integrity, responsibility, unity and understanding, which are fundamental to the Tata companies. By combining ethical values with business acumen, globalisation with national interests and core business with emerging business, the Company aims to be amongst the largest and most respected global organisations. The Company elieves in adopting the best practices that are followed in the area of corporate governance across various geographies. The Company has a strong legacy of fair, transp arent and ethical governance practices. The Company has espouse a ordinance of Conduct for its employees including the Managing Director and the Executive Directors. In addition, the Company has adopted a Code of Conduct for its Non-Executive Directors. Both these codes are available on the Companys website. The Companys corporate governance philosophy has been further strengthened through the Tata Business Excellence Model, the Tata Code of Conduct for stripe of Insider Trading, as also the Code of Corporate Disclosure Practices.The Company has in place an Information Security Policy that ensures proper utilisation of IT resources. The Company is in compliance with the requirements stipulated under Clause 49 of the list Agreements entered into with the Stock Exchanges with regard to corporate governance. Tech Mahindra a. ) Auditors Report The audit was conducted in accordance with the auditing standards generally accepted in India. Those Standards require that auditors plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and the disclosures in the financial statements.An audit also includes assessing the accounting principles used and the significant estimates made by the Management, as well as evaluating the overall financial statement presentation. Auditors believe that their audit provides a reasonable basis for their opinion. (a) Auditors have obtained all the information and explanations which to the best of their knowledge and article of belief were necessary for the pur queers of their audit (b) In their opinion, proper books of account as required by law have been kept by the Company so far as it appears from their examination of those books (c) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report are in agreement with the ooks of account (d) In their opinion, the Balance Sheet, the Statement of Prof t and Loss and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 (e) In their opinion and to the best of their information and according to the explanations given to them, the said accounts give the information required by the Companies Act, 1956 in the bearing so required and give a true and fair view in conformity with the accounting principles generally accepted in India (i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2012 (ii) In the case of the Statement of Profit and Loss, of the profit of the Company for the year ended on that date and (iii) In the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date. b. ) Management Discussion Opportunities Growth in Emerging MarketsCompared to the subdued growth expected in developed markets, emerging markets will continue to drive relatively higher growth due to new spectrum licensing, migration to direct to home platforms, broadband penetration, focus on value added services and conducive regulatory environment. This will render opportunities for the software service providers who can advert operators in achieving their business objectives in these areas. Moreover, as the developing world focuses on shift of Mobility, it may bring in huge investments in this area which could create opportunities for companies like Tech Mahindra. Legacy to Next Generation IT transformationTelecom is a dynamic and evolving industry with high focus on consumers changing demands. Service providers around the globe, on the back of dropping legacy revenues and high costs, are looking to transform their clients legacy platforms into next generation platforms. This will enable clients to optimize their product portfolio, and issue the costs associated with running the systems. The se transformation initiatives will lead to outsourcing opportunities. Tech Mahindra has been at the forefront of helping its clients transform their businesses in line with the changing global telecom environment. Increased scope of outsourced activitiesAccess to talent and cost optimization is the key driver for outsourcing. Telecom service providers are adopting several outsourcing strategies to benefit from off shoring. One of the trends is services which traditionally were done in house are now being included in the scope of global sourcing. In the network domain, network outstheircing provides an chance for wide range of services like field services, maintenance & support, E2E implementations and network infrastructure management. Managed services deals to cover network legacy systems have been tried in the mature markets and a similar trend will continue for the coming years. Adoption of Next Generation TechnologiesThe telecom industry continues to adapt and evolve with new technologies and new ways to communicate. victoryive waves of new technology in wire-line, wireless and IP domains have been sweeping the industry landscape. The Telecom industry is also altering to cope up with the changing needs and behavitheir of consumers and increased competition. Customers believe in convenience, choice of services, responsiveness and cost as important parameters to choose their service provider. Success in current business environment is characterized by the ability to adapt to the higher user expectations on the one hand and a rapidly changing technology environment on the other.As mobile broadband penetration expands, quick monetization has become a strategy of paramount importance for telecom service providers. Service providers are now focusing on providing solutions to enterprises by enabling their applications to be accessed via mobile platforms such as smart phones and tablets. With the growth in brotherly network media across the world, coupled wit h higher broadband penetration, users have been voicing their views about quality of services. Analysis of user sentiments on such social networks, at heart limits of privacy laws, is another area where there has been a growth in demand. Threats Reduction in Telecom Spending The global economy is going through turbulent times and most companies are reacting to the increased volatility.Though cash-rich, telecom companies have turned cautious due to the challenging macroeconomic environment. The decisions cycles on new arbitrary spend are prolonged. The service providers continue to focus on reducing costs by adopting measures such as optimizing IT Spend and postponing investments. Such cost-saving measures could have an adverse impingement on outsourcing. Global IT companies posing challenge with growing India presence Global IT service providers such as Accenture, HP, CapGemini and IBM are expanding their presence in India and pose a challenge to Indian IT service companies with their global client relationships, deep pockets and domain knowledge. Risks High customer concentrationIn FY 2012, revenues from the leading client, top 5 and top 10 clients account for 37%, 68% and 78% respectively. Though customer concentration has been declining over the years, loss of any of these clients could have a material adverse impact on their revenue and profitability. After Mahindra Satyams merger with the Company customer concentration will reduce significantly. Withdrawal of tax benefits In the past Auditors benefited from certain income tax incentives under Section 10A of the Income Tax Act (for the IT services that Auditors provide from specially designated Software Technology Parks or STPs) and also from Section 10AA of the Income Tax Act (for the IT services Auditors render from units set up in SEZs).As a result of these incentives, their operations in India have been subject to relatively low tax liabilities. The income tax benefits available to STP units have b een discontinued from 1st April 2011. As this withdrawal was foreseen, the Company decided to set up facilities in SEZ units at various locations as the units set up in SEZ area would continue to provide them with tax benefits similar to those in STPs. Auditors commenced operations in SEZ units at Hinjewadi Pune, Chennai, Kolkata and Chandigarh. Additional units are coming up at Noida. But despite this, tax incidence will increase over the previous years due to withdrawal of Section 10A benefits.In addition, there is no assurance that the Indian government will not enact laws in the future that would adversely impact tax incentives further and consequently, their tax liabilities and profits. When their tax incentives expire or are terminated, their tax expense will materially increase, reducing their profitability. Exchange rate risks The exchange rate between the Indian Rupee and the British Pound and the Rupee and the U. S. Dollar has fluctuated widely in the recent past and may c ontinue to fluctuate significantly in the future. The average value of the Rupee for the FY 2011-12 against the British Pound appreciated by approx 7. 7% and against U. S. Dollar by approximately 4. 4% for the FY 2010-11.Accordingly, their operating results have been and will continue to be impacted by fluctuations in the exchange rate of the Indian Rupee with the British Pound, the U. S. Dollar along with other foreign currencies. Any beef up of the Indian Rupee against the British Pound, the U. S. Dollar or other foreign currencies, as witnessed in the last year, could adversely affect their profitability. c. ) Corporate Governance Report The Company believes that Corporate Governance is a set of guidelines to help fulfill its responsibilities to all its stakeholders. It is a voluntary code of self-discipline to ensure that the Company abides by highest ethical standards. In line with this philosophy, the Company follows healthyCorporate Governance practices and has been reportin g the same in annual report even before the Company was listed in swaggering 2006. scorecard of Directors The Composition of the Board is in total conformity with Clause 49 of the Listing Agreement, as amended from time to time. The Company has a balance mix of eminent executive, non-executive and independent directors on the Board. The total strength of the Board of Directors is eleven. The Company has a Non-executive Chairman, who is a professional Director in his individual cognitive content and belongs to the Promoter Group and the number of independent directors is seven which is more than half of the total strength of the Board as required by the provisions of the Listing Agreement.The number of Non-Executive Directors is ten which is more than 50% of the total number of Directors. The Company is managed by the Vice Chairman & Managing Director and the Management Team. The Board reviews and approves strategy and oversees the executing to ensure that the long term objective s of enhancing stakeholder value are met. The Independent Directors and the Senior Management have made disclosures to the Board confirming that there are no material financial and/or commercial transactions between them and the Company which could have potential conflict of interest with the Company at large. The Board meets at least four times a year and the maximum gap between two meetings is not more than four months.During the year 2011-12, six meetings of the Board of Directors were held on 20th April 2011, 26th May 2011, 12th August 2011, 15th November 2011, 8th February 2012 and 21st March 2012. Agenda for the Board Meetings containing all necessary information / documents is made available to the Board in advance to help the Board to discharge its responsibilities effectively and take informed decisions. In some instances, documents are tabled at the meetings and the concerned manager also makes presentations to the Board or Committees. None of the Directors on the Board is a member in more than 10 committees or acts as a Chairman of more than 5 committees across all companies in which he is a director.The directors of the Company are not inter se related. chief executive officer / CFO Certification As required under Clause 49 V of the Listing Agreement with the Stock Exchanges, a Certificate on the Financial Statements for the financial year ended on 31st March, 2012 has been given to the Board of Directors by the Vice Chairman & Managing Director and the Chief Financial Officer of the Company. Code of Conduct All the Directors and senior management personnel have affirmed compliance with the Code of Conduct/ Ethics as approved and adopted by the Board of Directors and a declaration to that effect signed by the Managing Director. The Code has been posted on the Companys website www. techmahindra. om Policy for restraint of Insider Trading In compliance with the provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992, (as amended from time to time) and to preserve the confidentiality and prevent misuse of unpublished price sensitive information, the Company has adopted a policy for prohibition of Insider Trading for Directors and specified employees of the Company, relating to dealing in the shares of the Company. This policy also provides for periodical disclosures from designated employees as well as pre-clearance of transactions by such persons. Whistle cetacean mammal Policy The Company has a Whistle Blower Policy in place.In terms of this policy, all employees are encouraged to report any instance of unethical behaviour, fraud, violation of the Companys Code of Conduct or any behaviour which may otherwise be inappropriate and harmful to the Company. The policy provides a mechanism for employees to raise concerns that relate to violation of the Code of Conduct, Accounting, Internal Controls, Auditing Matters and applicable national and international laws including statutory / regulatory rules and regulation s. This policy has been communicated to all employees and has been posted on the Companys Intranet for ready access. Risk Management The Company has a well-defined risk management framework in place. The risk anagement framework adopted by the Company is discussed in detail in the Management Discussion and Analysis section of this Annual Report. The Company has established procedures to periodically place before the Board, the risk assessment and minimization procedures being followed by the Company and steps taken by it to mitigate these risks. 6. ) Share Prices Analysis Share Prices of TCS as on 29th August are nearly Rs 1352. 90. It has increased from approximately Rs 954 to Rs 1352. 90. Share prices have been on the increase in the last year. According to the price movements and ratios metrical it is a very good buy. Share Prices of Tech Mahindra as on 29th August are nearly Rs 875. 80.It has increased from approximately Rs 617 to Rs 875. 80. Share prices have been on the incre ase in the last year. According to the price movements and ratios calculated it is a good buy. Comparing both together TCS is a better buy. 7. ) Key Improvement Areas and Ratings a. ) Key Improvement Areas Both should try to reduce their debtors. Tech Mahindra should increase its volume of current assets. Rest both the companies are high acting companies as seen by the analysis and share prices. b. ) Rating TCS is better than Tech Mahindra as the ratios are fairly better for it. Also from investment point of view share prices and ROE has been better for TCS. Also profitability of TCS is higher.