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STAR PERFORMER GOES PUBLIC

THE ADVENT OF India's largest information technology company, Tata Consultancy Services (TCS), in the Indian capital market might have been long delayed, but already, within days of the filing of its draft prospectus, there is a tremendous interest all round. Even as a privately owned and closely held subsidiary of Tata Sons, TCS had given the corporate world enough to talk about. A pioneer in software development four decades ago when computers and information technology were not fashionable, it became in 2003 the country's first infotech company to record a turnover in excess of $1 billion. One of the largest employers of software personnel in the country, TCS has seen its staff going on to become successful entrepreneurs themselves. Last year the company earned a net profit of Rs. 1,800 crores on a turnover of Rs. 7,000 crores. Significantly, at a juncture when all infotech companies found their margins squeezed, especially on their large business from the United States, TCS has been able to hold its own.

There is little doubt the TCS public offer comprising 5.5 crore shares that are expected to fetch nearly Rs. 6,000 crores will help the company and the Tata group leverage their proven strengths. By all calculations the group is set to move up to the top slot in the stock market capitalisation table after the TCS issue, which will leave it with an estimated capitalisation of more than Rs. 98,000 crores. For a group that has always placed a premium on ethical standards, the TCS listing — for the moment only on the Indian bourses — will present another opportunity to demonstrate convincingly that corporate integrity and profitability can go hand in hand. The point is vital considering that, across the world, the last high tech boom masked the true worth of many IT companies of dubious standing. Investors who placed money in them are now holding worthless paper. The TCS share offering is being unveiled at a time investors have become far more circumspect about all stocks including those in technology. Traditional investors who have benefited from investments in the group's other well established companies such as Tata Steel and Tata Motors now get an opportunity to buy a share that is bound to take its place along with the shares of a few other widely admired Indian IT companies, such as Infosys, Wipro and Satyam. Institutional investors, including those overseas, are expected to increase the weightage of Indian technology stocks in their portfolios to accommodate their new investments in TCS. There is in fact an expectation that a high quality share offer such as this will qualitatively transform negative perceptions of the Indian market by outside fund managers.

The Tata group, of course, benefits directly in a number of ways. Part of the issue proceeds will go to the holding company, Tata Sons. A number of group companies that are simultaneously divesting their holdings in TCS have already seen their shares move up on the Indian exchanges. TCS itself stands to add considerably to its already huge cash flows. The significance of this for an industry that relies heavily on acquisitions to expand business should not be lost sight of. A listed TCS share will be even more valuable in another sense. Technology companies use their quoted shares as a currency in cementing deals with one another. Above all, TCS — for long a familiar name among computer professionals and technology users — might become a household name if, as expected, its issue attracts a large number of retail investors. For many reasons therefore, the TCS public offer will be a seminal event comparable to Infosys' listing on NASDAQ six years ago.

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