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TCS' prospectus: Excerpts

Jun 14, 2004

Tata Consultancy Services (TCS), Asia's largest software services company, filed its red herring prospectus with the SEBI late last week. Through this public issue, the company has put on offer 55.4 m equity shares of the face value of Re. 1 each. The offer is being made through the 100% book-building process and retail investors will been allocated 25% of the shares on offer, on a proportionate basis.

Financial snapshot...
(Rs m) FY01 FY02 FY03 9mFY04
Sales 30,567 43,706 55,179 50,852
Other income 727 959 780 649
Total income 31,294 44,665 55,959 51,501
Expenditure 21,662 31,176 42,755 38,062
EBIT 8,905 12,531 12,424 12,790
EBIT margins (%) 29.1% 28.7% 22.5% 25.2%
Profit before tax 9,632 13,490 13,204 13,439
Tax 1,927 2,568 2,445 2,085
Net profit 7,705 10,922 10,759 11,354
Minority interest - 55 (79) (4)
Equity in affiliates 79 65 48 78
Extraordinary item - - 211 -
Net Profit after adjustments 7,784 11,042 10,939 11,428
NPM (%) 25.5% 25.3% 19.8% 22.5%
No. of shares 478.3 478.3 478.3 478.3
EPS (Rs) 16.3 23.1 22.9 31.9

TCS is a part of the Tata Group, and holds the distinction of becoming the first Indian software company to cross the coveted US$ 1 bn revenue mark in FY03. During the nine-months ending December 2003 (9mFY04), TCS reported consolidated revenues and profits of Rs 50.8 bn and Rs 11.4 bn respectively. The company's operating margins (including depreciation) stand at 25.2%.

The company derives the largest chunk (77%) of its revenues from the application development and maintenance services. The remaining is being contributed by enterprise solutions and package implementation (20%), asset leveraged solutions (2%) and consulting and other services (1%). Quite unlike its domestic peers like Infosys and Satyam, TCS' revenue share from the US region is a low 64%, with another major chunk (20%) coming from the European region. Also, contribution of Indian revenues for the company is at a high of 13%, unlike its peers who have miniscule (2%-4%) contribution from the same. However, around 69% of this high contribution of Indian revenues is result of the contribution of CMC, which TCS had acquired from the Government of India in 2001.

TCS has a clientele of 491 and a major 19% contribution to revenues comes from the GE Group alone. The company has a high repeat business of around 97%. As for the delivery model, a high 64% of TCS' revenue comes from its onsite efforts. As a matter of comparison, this figure for Infosys stands at a lower 55%. TCS employed 28,797 employees at the end of December 2003 and its revenue per employee thus stand at Rs 1.8 m, lower than Infosys' Rs 1.9 m at the end of FY04.

TCS, based on its annualised 9mFY04 earnings, has an EPS of Rs 31.9.While this write-up was just a brief regarding the overall business of TCS, we shall put up a detailed IPO report shortly, which will elaborate on the business model of the company as well as its comparative standing with its peers and its growth prospects going forward.The report will also cite the reasons to apply/not apply for the IPO.

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