The bill discourages mainly manufacturing companies from outsourcing overseas, by providing a 20% tax credit on eligible costs to companies which move outsourced activities back to the US.

"TCS's A3 issuer rating and stable outlook are unaffected by the proposal due to the company's established brand, competitive positioning and strong operating performance," says Nidhi Dhruv, a Moody's Analyst. "These factors should help it withstand an immediate fallout from the bill -- should it be passed in the US, one of its most important markets."

"However, the Act -- assuming the legislation passes -- will hinder contract renewals, and dampen growth rates in the Indian IT services industry over the longer term," adds Dhruv, who is also Moody's lead analyst for TCS. The US market accounted for 51% of TCS's consolidated revenue for FY2012.

At the same time, Moody's believes that TCS could partially mitigate the negative effects of the legislation over the long term. The company has high EBITDA margins of approximately 29.5% which allow it some flexibility to accommodate discounts to its US customers, as compensation for the tax credit. TCS has also demonstrated customer stickiness, as evidenced by its high customer retention rates of above 95%, over the past two years.

Furthermore, TCS maintains a high degree of financial flexibility and a strong liquidity profile. As of 30 June 2012, the company reported cash and cash equivalents of about USD534 million and total debt of about USD56 million, reflecting its strong balance sheet position and high recurrent cash flows which allow it to maintain a net cash position.

TCS further demonstrated its resilience to headwinds of policy changes and macro uncertainties in the US and Europe through a 39% YoY growth in revenues from North America and 53.8% growth in revenues from UK in Q1 FY2013. The company also added 29 new clients during the quarter.

Nonetheless, we remain cautious about the challenges that TCS along with other Indian IT outsourcing companies could face in the form of slowing demand as economic uncertainties fester, coupled with political and policy initiatives that incentivize insourcing in key markets like the US.

Tata Consultancy Services Limited, part of one of Asia's largest conglomerates, the Tata Group, is one of the world's leading information technology consulting services and business-process outsourcing firms. TCS is also the largest Indian IT services company by revenue (USD9.9 billion) and operating profit (USD2.8 billion) for the financial year ended March 2012.

Nidhi Dhruv Analyst Corporate Finance Group Moody'sInvestors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Philipp L. Lotter MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Releasing Office: Moody's Investors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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