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TCS to go public next month

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CIOL Bureau
New Update

Denny Thomas



BOMBAY: Tata Consultancy Services (TCS), India's top software services company, will file for what could be the nation's largest IPO next month, banking sources said, signaling confidence in the outsourcing industry.

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TCS has not yet decided on the issue size, but it is expected to raise between 35 billion and 40 billion rupees ($800-$913 million) through an initial public offering (IPO) of about 10 percent of its equity, one banker said.

The much-anticipated flotation would value TCS at as much as $9.1 billion, making it India's fourth-most-valuable company by market capitalization.



"The papers are likely to be filed by early-to-mid May," said one banker, who declined to be identified. Two other banking sources confirmed the expected timing of the IPO filing.



The TCS IPO looks set to surpass the $690 million raised in 1993 by Reliance Industries Ltd, India's biggest petrochemicals maker and a refiner.

Several Indian companies are planning IPOs this year to tap into the fervent interest among foreign investors in the country. Bankers said TCS was keen not to miss this opportunity after missing its chance to float during the late 1990s tech boom.

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Signs of revival in India's $16 billion software services sector have emboldened the powerful Tata group, India's second-largest conglomerate, to finally list TCS. Indian software firms have stepped up hiring to meet demand from multinationals.

TCS and its subsidiaries employed some 30,000 workers at the end of 2003, more than the 26,500 Infosys Technologies, the second-largest software exporter, had on its rolls in March.

MODEST TCS PRICING EXPECTED



Analysts said TCS clocked revenues of about $1.5 billion for the year to March 2004, with a net margin of about 20 percent.



Infosys ended March with revenues of $1.08 billion and is valued at around $8.2 billion, giving a market cap to revenue ratio of 7.6 -- much higher than an anticipated 6.1 for TCS.

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Merchant bankers said DSP Merrill Lynch, JM Morgan Stanley and JP Morgan are likely to win the mandate as the TCS IPO's lead managers. The issue could hit the market by June or early July, subject to regulatory approvals, they added.

Banking sources said TCS has been encouraged by the overwhelming response to public share sales that raised about $3.5 billion in the first three months of the new year.



Tata group declined to comment on the matter.

The biggest ever share issue in India concluded last month, when already-listed state-run Oil and Natural Gas Corp raked in $2.33 billion through a 10 percent equity sale.



In total, the government sold $3 billion worth of stakes in six companies to meet a privatization target and cover its deficit, encouraged by last year's leaping Indian stock market. Many private companies also raised equity capital last quarter.

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BANKS LINE UP



At least four other banks, including Kotak Mahindra, HSBC Securities and ICICI Securities, will co-lead manage the TCS issue, sources said.



TCS is 90 percent owned by Tata Sons, the holding company of salt-to-software Tata group. Bankers said the delay in finalizing the issue was on account of a minor restructuring planned by the Tata group ahead of the listing.



Earlier this month, India's capital market regulator allowed TCS to take over control from Tata Sons of a 51.1 percent stake in computer hardware company CMC Ltd. Tata group had bought the stake when the government privatized CMC in 2001.

The export-driven software services sector has grown despite a recent rally in the rupee against the dollar and U.S. protests against the transfer of jobs to India. Infosys and Wipro Ltd, the third-biggest software exporter, have said the downward pressure on billing rates has eased of late.



($1 = 43.80 Indian rupees)

© Reuters

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