TCS raises Rs 5,420 crore

Denny Thomas

MUMBAI: Top Indian software services exporter Tata Consultancy Services Ltd. (TCS) has raised Rs 5,420 crore, near the top end of expectations, in Asia's second-biggest tech IPO this year and India's largest IPO ever.

The basic offer of 55.45 million shares was subscribed 10.3 times as investors were eager to get a slice of the nation's booming software outsourcing industry. As a result, analysts expect a strong showing by TCS when it lists around the last week of August.

"It is heartening for the Tata group to have this kind of response that far exceeded what we had hoped for," Ratan Tata, Chairman of the Tata group, told reporters.

"As it token of appreciation, we thought we should price the issue at a level that provided an attractive upside to investors," he said.

TCS has grown along with a boom in outsourcing to India of foreign software design, call centres and back-office services.

TCS competes with Nasdaq-listed Infosys Technologies Ltd. and New York Stock Exchange-listed Wipro Ltd. for business from U.S. and European clients.

The industry exported $12.5 billion worth of software and services last year, as Western companies are eager to take advantage of India's cheap but skilled labor force.

TCS, part of India's Tata family conglomerate, said it would offer shares at Rs 850 apiece, near the upper end of a previously disclosed range of Rs 775-Rs 900 per share. The company is offering a total of 63.75 million shares, including a green shoe option of 8.3 million shares.

"It is a very good price and offers plenty of scope for gains on listing," said Gurunath Mudlapur, head of research at Khandwala Securities.

The overall issue was subscribed 7.7 times.

The sale represents a 13.3 percent stake in the company and values TCS at $8.78 billion, making it India's fourth-biggest company by market capitalisation, just behind Infosys, which is valued at $8.82 billion.

Brokers said the stock was quoted at a premium of Rs 200 in the grey market, which points to a strong start.

"Given the response to the issue, the current market conditions and the company's strong fundamentals, I expect it to list at Rs1,150," Mudlapur said.

The company's valuation places it behind state-run oil explorer Oil and Natural Gas Corp and top petrochemicals maker and a refiner Reliance Industries Ltd.

Among Asian technology IPOs in 2004, TCS trails only Chinese chip maker Semiconductor Manufacturing International Corp., which raised $1.8 billion in March.

More than a decade ago, the erstwhile Reliance Petroleum Ltd. had raised Rs 2,172 crore. That was the biggest IPO by an Indian company till the TCS issue. Reliance Petroleum subsequently merged with Reliance Industries Ltd. to form India's largest conglomerate.

TCS reported a 71 percent rise in net profit to Rs 519 crore for the past quarter on sales of Rs 2,134 crore, up 40 percent on the year before.

It crossed the $one billion milestone in annual revenues in fiscal 2003 and ended the year to March 2004 with revenue of $1.3 billion, growth of 20 percent.

Analysts expect TCS to report earnings per share of Rs 42 for the fiscal year to March 2005, translating into a price/earnings ratio of about 20 at the IPO price.

That is a discount to Infosys, which trades at a multiple of about 24 while Wipro Ltd., the third-biggest software services firm, trades at 25.

The funds raised by Tata will be spent on telecoms and a potential foray into biotechnology, a director said last month. Tata says it would eventually look at the possibility of an overseas share listing for TCS.

Set up in 1968, Mumbai-based TCS is led by Chief Executive, S Ramadorai, a 32-year company veteran. It is the largest division of Tata Sons -- parent company of the diversified Tata conglomerate, which ranges from salt to cars and telecoms.

"This is the culmination of a mammoth exercise which lasted more than three years," said Amit Chandra, managing director of DSP Merrill Lynch, a lead manager to the issue. "It provides TCS enormous branding benefits, a lot more visibility and gives them currency for inorganic growth".

With some 30,000 staff, TCS has 149 offices in 32 countries and boasts 491 clients, including six of the ten largest and 37 of the 100 largest U.S. firms in the Fortune 500.

It is General Electric's largest offshore IT services supplier. GE accounts for some 17 percent of TCS revenue.

(Additional reporting by Giri Venkatesan)