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Battle of the Best: RIL v/s TCS

In the race to be crowned India’s most valuable company in terms of market capitalization, there are three contenders, namely, Mukesh Ambani led Reliance Industries, Natrajan Chandrasekaran led Tata Consultancy Services and a distant third in Aditya Puri led HDFC Bank. The three corporate behemoths differ greatly in terms of the way they operate their businesses, in terms of revenues and market valuations.

Coming to the first and most important parameter of market cap. RIL and TCS have always been neck to neck in terms of market cap with Reliance reclaiming the status as the country’s most valuable company last month. TCS, however, overtook Reliance again just a fortnight ago to claim the crown when its shares rose 2.39% to close at ₹ 2,231 on June 10th.

As things stand today, TCS leads the pack with a market cap of close to ₹ 8,51,000 crore or ₹ 8.51 Trillion, RIL is next to follow with ₹ 8,21,450 crore or roughly ₹ 8.21 Trillion and India’s largest private banking institution HDFC Bank is a distant third with a market cap of ₹ 6,64,000 crore or ₹ 6.64 Trillion. Other companies that feature on the list include India’s biggest FMCG Company Hindustan Unilever Ltd, India’s largest mortgage lender HDFC, another FMCG giant ITC, Infosys, SBI, Kotak Mahindra Bank and ICICI Bank.

Sticking to the top two entities on this list; although TCS has outpaced Reliance Industries so far this year gaining 19% compared to RIL’s 14%, analysts seem to be in favour of the oil to telecom conglomerate going forward this year. While the refining and petrochemical businesses of RIL remain weak and it has massive amounts of debt on its books; growth in Reliance Jio and its retail businesses that have high profit margin are expected to offset the slowdown in its core business. Add to that, it has plans for demerging its fiber assets to a separate infrastructure investment trust which would help reduce debt and deleverage its balance sheet.

For TCS, although the management continues to expect a double digit growth trend, its most important market remains North America, and with the recent H1-B visa restrictions imposed by the Trump administration, things could get a little tight.

Another very important parameter for stock picking is Price Earnings or PE Ratio, which is; the value or share price of the company is how many times its earnings potential. The lower this ratio, the better is the investment opportunity in the company as it means the stock is undervalued. While TCS and RIL operate in different sectors and their PE Ratios cannot be directly compared, the chart gives us an idea of the valuation metrics of the two firms which clearly seem to be favouring RIL.

And because the valuation of TCS is so rich and it commands a hefty premium, any disappointment on the earnings front could see its share price tank.

 

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