Moody's retains A3 ratings for TCS with stable outlook

Global ratings agency Moody's today affirmed largest software exporter TCS' rating at the highest among India Inc with a stable outlook.

The rating agency said the Tata Sons-run company's credit profile is stringer than the 'A3' rating, but the sovereign rating of BBB- constrains the rating.

"As an Indian company, TCS remains exposed to potential changes in regulations and tax laws in the country and, as such, its rating cannot be completely separated from the rating on the sovereign," it said.

The note, however, added that TCS is the only corporate to be rated two notches above the sovereign.

The higher rating is on strengths like diversified business, high margins, low leverage and large free cash flow, the agency said.

"TCS' geographically diversified operations across multiple service verticals and industry-leading profitability are the cornerstone of its strong and resilient credit profile," a vice-president and senior credit officer Kaustubh Chaubal said.

He said 94 percent of the company's revenues come from overseas but was quick to add that 75 percent of its over 4 lakh employees are based in the country.

The agency said the company's "exemplary record" in delivering strong operating results with large positive free- cash flow generation and its global operations result in it being the only Indian corporate to be rated two notches higher than the sovereign.

However, there are risks like exposure to foreign exchange volatility, it said, adding even though the company follows a hedging policy, its revenues are foreign currency dominated while the costs are majorly in the rupee.

TCS, which has the largest market capitalisation in the country at over Rs 7.6 trillion, is also exposed to the risks of potential policy changes and macro uncertainties, although its ability to penetrate new geographies and adjust its delivery model minimize such risks, it said.

Competition from companies also remains significant, even as the company benefits from large educated workforce and the Tata brand name.

The agency said TCS can be downgraded if the sovereign rating moves down or if it provides support to affiliated companies other than through its parent, Tata Sons, or if it initiates debt-funded acquisitions.

The TCS counter closed 0.4 percent up at Rs 1,988.80 on the BSE with a mcap of Rs 7.61 trillion against the bechmark falling over 0.6 percent.