Written by Shariah Stocks Screening

Is TCS (Tata Consultancy Services) Halal to invest in? Facts You Should Know

TickerTCS
Company NameTata Consultancy Services Ltd.
Shariah ComplianceCompliant
DP Ratio1.54%

Business Sector Screening:

We have conducted a comprehensive review on Tata Consultancy Services Ltd. from a Shariah point of view and analyzed its sources of income to know whether they are complying with Shariah principles.

Tata Consultancy Services (TCS) stands as a global leader in the realm of information technology services, consulting, and business solutions. As an integral part of the esteemed Tata Group, one of India’s largest and most revered conglomerates.

The company’s comprehensive suite of services encompasses a wide spectrum of offerings. These include IT Services, where TCS assists businesses in application development, maintenance, and infrastructure management, enabling them to harness technology for growth and operational efficiency. Furthermore, TCS offers strategic Consulting services that span areas such as business strategy, digital transformation, and IT strategy, providing tailored solutions to address the unique challenges faced by its clients. Additionally, the company specializes in Business Process Services, aiding organizations in optimizing and streamlining their core processes, including finance, human resources, and customer service.

Let’s have a look at the operating segments from which the company derives its revenue and apply the Shariah screens to them:

Operating Revenue (In INR Crores)

for year ended 31st March 2023

Segment RevenueNon Permissible Revenue% of Non-Permissible RevenueNon-Permissibility ClassificationComments
Consultancy2,23,332 –– – 
Sale of Equipment2,126
Total2,25,458 –– 

Tricky Areas From a Shariah perspective

Looking into their Revenue streams, the tricky area that can be observed from a Shariah perspective is their involvement in the Banking, Financial Services and Insurance Sector.

A key concern voiced by Shariah compliant users is that such tech companies are providing software services to such financial institutions which are interest based. This question was discussed with the Shariah Board in detail. The Shariah board was of the opinion that such software services are provided to the entire bank and is not exclusively to process only interest payment and receipt. Further it was observed that such software can also be used by Islamic banks, evidencing a clear compliant alternative usage of the service provided by such tech companies. Hence such tech companies have been classified as Shariah compliant after due review by the Shariah board.

This is the pitfall of screening providers who exclusively depend on automated algorithm-based screening. Let’s take the case of TCS. It discloses that 38.82% (2023) revenue is contributed from Banking Financial services and Insurance segment. The screening algorithm would have picked up that more than 5% of revenue is coming from financial and insurance segment and hence would have classified it as non-compliant. A knowledge-based approach entails understanding the actual business model of the company i.e. it is revenue from selling software to Financial and insurance segment clients (Which is a permissible activity) and is not a revenue generated from actual Financial and insurance activities (which is a non – permissible activity). At Islamicly we even go further by consulting a reputed board of Shariah scholars and obtaining their view directly so that users get the most rigorously screened results that they can trust.

Since the Company in question is purely into the provision of consultancy services for other companies in various industries, NO BNPI was found from their operating revenue.

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Let’s have a look at the non-operating income of the company

Non-operating Revenue (In INR Crores)

For year ended 31st March 2023

Segment RevenueNon Permissible Revenue% of Non-Permissible RevenueNon Permissible ClassificationComments
Interest Income3,2483,248100%Interest Income –
Proceeds from sale of securities220220100%Gains from securities –
Dividend income1515100%Gains from Mutual Funds –
Total Other Income3,4833,483100% –– 

It is clear from the table above that the non-operating income of the company includes interest income, Dividend income and gains from sale of securities which are Shariah non-compliant. Gains from sale of securities involve companies engaged in activities or financial practices that are deemed non-compliant with Shariah principles, any gains derived from such transactions may be considered non-compliant as well. This amount is included for the calculation of the dividend purification.

Sector Compliance Calculation:

Total Revenue2,25,458
Non permissible operating revenue0
Interest Income3,248
% of non-permissible revenue1.44%
Sector CompliancePASS

Dividend Purification Calculation:

Revenue DescriptionNon permissible revenue (INR Crores)
Non permissible operating revenue0
Non permissible non-operating revenue3,483
Total Non-permissible revenue3,483
Total Revenue of the company2,25,458
Dividend purification Ratio1.54%

Financial Ratio Screens:

(All figures in crores of INR for the quarter ended 30th September 2023)

DescriptionNon-Permissible Revenue
3 years Average Market1,23,74,552.38
Total Debt77,640
Islamic Debt0
Adjusted Debts77,640
LC1 Ratio0.63%

Source: All the above information is based on the website of the company and the latest Quarterly Report for the period ended 30th September 2023.

Conclusion

Given the above information, we at Islamicly believe that TCS, Inc. is a Shariah-compliant company as per the Shariah screening criteria.

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Last modified: September 10, 2024
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