COMPANY WATCH: TATA CONSULTANCY SERVICES (TCS)

After a series of big joint ventures, outsourcing agreements and acquisitions, the company has given a firm indication that the acquisition spree will continue in the future. TCS Executive Vice-President Phiroz Vandrewala said in some media interviews recently that the company is finalising acquisitions in the banking space and it has zeroed in on a few companies in France and Germany .

Tata Consultancy Services (TCS), Asia 's largest IT consultancy, services and BPO firm, is on an expansion spree. It formed a joint venture with State Bank of India , the country's largest commercial bank, to serve the banking and financial services industries. The JV will be known as C-Edge Technologies Limited and will offer services to banks and financial institutions of India and other countries. TCS and SBI will own the company 51:49 respectively with equal participation on the Board of Directors. TCS expects the JV's will develop high-value niche software and services by using the financial industry domain and technology capabilities of the two parent companies.

Acquisitions

TCS acquired Sydney-based Financial Network Services (FNS), an Australian banking software provider for approximately $26 million last month. TCS also announced earlier this month it had bought 100% equity in Chilean Business Process Outsourcing firm Comicrom for $23 million. A privately-held company with 1257 employees, Comicrom provides BPO services to banks, insurance companies, pension funds, government bodies and other large corporations in Chile . Comicrom has a 57% market share of the check-processing business in Chile and counts more than 70% of the banks operating in Chile as its customers. Comicrom also processes 67% of premium payments per month for four of the seven Chilean pension funds and 55% of premium payments per month for four health insurance providers respectively. The company had revenue of $35.5 million during FY 2005 and operating margins of 14%. TCS perceives the acquisition as another building block in its transaction-led BPO services for the Pensions and Insurance sector following the recent outsourcing engagement with the U.K. 's Pearl Group.

Reduce Reliance on the U.S.

The acquisition of Comicrom is a part of TCS's strategy to build a sizeable business in Latin America , a geography where it is ahead of the other leading Indian software companies. Latin America, Japan and Europe play a critical role in de-risking TCS's business, by further reducing reliance on the U.S. , which already accounts for a lower proportion of its revenuer compared with other large Indian software companies.

New Growth Areas

TCS has identified five main growth areas: Products, BPO, Infrastructure, Engineering Services, and Consulting. Currently almost 90% of TCS's revenue comes from core IT services such as application development, maintenance and enterprise solutions implementation, which accounted for about $1.75 billion of the $2.3 billion revenue in 2004-05. Now the company wants to restructure its business mix. N. Chandrasekaran, executive vice-president and global head (sales and operations), recently told information portal rediff.com that the company has decided to increase the proportion of revenue from other business lines.

Chandrasekaran said TCS is looking to generate between 5% and 10% of its revenue from the five new growth areas to be between $500 million and 800 million each. This will result in total new revenue of about $3 billion in new business in the next few years. That's an ambitious target as it equals the total expected turnover of the company for the current fiscal year to March 2006. Chandrasekaran believes that if these five segments can bring in between 25% and 30% of total revenue, then the share of core IT services revenue will decline to between 60% and 70%.

Stock Listing

TCS's shares are listed on the Bombay Stock Exchange and National Stock Exchange, the two major stock markets in India . It first listed its stock in India August last year. The share price touched a high of $36.7 (Rs 1,695) on Dec. 9, 2005 compared with the issue price of $18.8 (Rs 850). Recent media reports have indicated that the company is considering a secondary listing in the US . TCS chief executive officer and managing director Ramadorai had earlier talked about the London Stock Exchange and the Deutsche Börse as possible candidates for listing in Europe . But, with the plans of US listing, the idea of a Europe listing may get dropped.

While TCS is the undisputed market leader among all the IT companies of India in terms of total revenue and amount of software and services exports, there is continued rivalry between TCS and Infosys , India 's second-largest IT services company of India , for pole position. Both companies command a market value of more than $16 billion swapping the top position from time to time.

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