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TCS IPO: A precursor

Jul 22, 2004

The IPO of Tata Consultancy Services (TCS), Asia's largest software services company, will begin on July 29, 2004. Through this public issue, the company has put on offer 55.4 m equity shares of the face value of Re 1 each. The price band fixed by the company is Rs 775 to Rs 900 per share. 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 FY04
Sales 30,567 43,706 55,179 71,227
Other income 727 959 780 937
Total income 31,294 44,665 55,959 72,164
Expenditure 21,031 30,383 41,716 51,799
Operating profit 9,536 13,323 13,463 19,428
OPM (%) 31.2% 30.5% 24.4% 27.3%
Depreciation 631 793 1,039 1,331
Profit before tax 9,632 13,489 13,204 19,034
Tax 1,927 2,568 2,445 2,884
Net profit 7,705 10,922 10,759 16,150
Minority interest - 55 (79) (125)
Equity in affiliates 79 65 48 100
Extraordinary item - - 211 -
Net Profit after adjustments 7,784 11,042 10,939 16,125
NPM (%) 25.5% 25.3% 19.8% 22.6%
No. of shares 455.5 455.5 455.5 455.5
EPS (Rs) 17.1 24.2 24.0 35.4

About the company

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 FY04, TCS reported consolidated revenues and profits of Rs 71.2 bn and Rs 16.1 bn, YoY growth of 29% and 47% respectively. The company's operating margins stand at 27.3%, an improvement of 290 basis points over FY03 margins.

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 (19%), asset leveraged solutions (3%) 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 62%, 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.

TCS has a clientele of 548 and a major 18% 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 30,121 employees at the end of FY04 and its revenue per employee thus stand at Rs 2.4 m, higher than Infosys' Rs 1.9 m at the end of FY04. TCS' FY04 EPS stands at Rs 35.4.

Our IPO analysis...

While this write-up was just a brief regarding the overall business of TCS, we shall put up a detailed IPO report tomorrow, 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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