Whilst capioIT has written recently that the Indian vendors are as much legacy IT services providers as IBM, Accenture, CGI or Capgemini, their market capitalisation does not reflect this. If one believes the market is rational (or at least consistently irrational), the future is being bet on the Tata Consultancy Services model ahead of the traditional legacy firm.
This market hype and arguable value inflation of Indian vendors is no longer at the level of the “as a service” or cloud vendors (see – A tale of two companies – Workday and Unisys show the gulf between as a service vendors and the legacy providers) but it is still incredibly significant. Nothing highlights this better than a comparison of TCS with Xerox, CGI, Unisys, Capgemini, Fujitsu and CSC.
Between them these legacy vendors have revenue of approximately $80 billion dollars. TCS has a revenue of just over $10 billion dollars. It would be reasonable to expect that these organisations combined market capitalisation would dwarf that of TCS.
If so, the following chart may surprise somewhat.
If you have not interpreted this correctly, TCS market capitalisation (as at June, 2014) monsters the other vendors in the analysis to the extent that TCS overwhelms them all with $10 billion left. If nothing else this reinforces the ability of TCS to explore new markets but equally highlights the inability of the legacy vendors to reform their business in any meaningful way. The most poorly valued vendor is Fujitsu which does not surprise at all.
Clearly TCS needs to transform the customer engagement model and focus more significantly on asset based services and breaking the revenue to headcount trap it is in. The market clearly thinks that this challenge is much smaller than the one that faces the legacy and pure-play services vendors. It reinforces how vulnerable the likes of Capgemini and CSC will be to acquisition as the market inevitably consolidates.