TCS looks to BPO for more growth

Rosemary Arackaparambil

MUMBAI: India's top IT services company, Tata Consultancy Services Ltd. (TCS), plans to sharpen its focus on back-office services and sees it as a core growth area, its managing director said.

Fresh from a stock market listing last week, the information technology arm of India's second-largest conglomerate wants to build on its success in software with a renewed push into business process outsourcing (BPO).

"We are strengthening the business processes, which are in the DNA of TCS from the start," Managing Director S. Ramadorai said at his firm's Bombay headquarters. "...it is a very profitable business. We will go for accelerated growth," he said.

TCS recently exited Intelenet Global Services, which dealt in voice-based call center work, as part of an effort to focus more on transaction processing in sectors such as insurance and airlines, Ramadorai said. TCS now plans to consolidate all BPO interests into a single division.

Rivals Infosys Technologies, Wipro and Satyam Computer Services all have BPO units as well.

TCS was established in 1968 by the Tata group, which has interests across steel, hotels, autos, telecoms and chemicals.

Its $1.17 billion initial public offering, India's biggest, was warmly received last week. The shares rose 16 percent and have remained steady since then.

India's BPO sector has grown into a $3.6 billion industry from nowhere a few years ago, driven by a push by cost-conscious multinationals towards offshore work.

When it started in 1968, TCS projects included generating telephone and electricity bills and share transfers, much akin to the back-office processes being outsourced today, Ramadorai said.

The soft-spoken, bespectacled 59-year-old has run TCS for eight years and says he was never tempted to leave. A 32-year TCS veteran, he enjoyed the challenge of working in an innovative part of the Tata empire, in which its owners rarely interfered.

LARGE SCALE

With about 30,000 staff, TCS has 149 offices in 32 countries and nearly 500 clients, including six of the 10 largest U.S. firms in the Fortune 500 list. It is General Electric's largest offshore IT service provider.

Ramadorai says what makes TCS special is a track record in managing large-scale "end to end" projects, including the automation of India's National Stock Exchange trading system and development of a Swiss securities clearing and settlement system.

TCS pipped its Indian competitors to reach the $1 billion mark in annual revenue in the year to March 2003, but Infosys and Wipro crossed that hurdle barely a year later.

After the long-delayed IPO, TCS's market capitalisation of $10.2 billion is ahead of Infosys's $9.1 billion and Wipro's $8.7 billion. TCS trades at a slightly cheaper price-forward earnings ratio of 24 compared to Infosys's 26 and Wipro's 29.

With outsourcing becoming increasingly popular in the West, consultants such as IBM, EDS and Accenture are expanding in India. Ramadorai acknowledges the competition is formidable, but says the presence of such companies only attracts more customers.

While echoing the views of rivals that pricing pressure had abated in the industry, Ramadorai cautioned that large volume deals would still be competed for mainly on price.

As for the public listing, Ramadorai welcomed TCS's new-found visibility. Previously it could only watch as listed competitors stole the limelight in an industry it pioneered.

"The daunting thing is suddenly we are going to be visible all over the place," he said.