Mumbai: The formal handing-over ceremony might well be a closed-door, low-key affair, but the taking over of the management and controlling interest of the public sector Computer Maintenance Corporation (CMC) by Tata Consultancy Services (TCS) would pave way for the emergence of a software giant.
CMC is the first PSU to be privatised in the current financial year. Unlike the sell-off of the government stake in Balco, which got mired in controversy, the selling of CMC's 51 per cent stake to TCS passed off without a whimper of protest. In fact, the move has had a positive effect on the outlook of the Indian software scenario.
Set up in 1976 by the Indian government to support and maintain IBM machines, in the wake of IBM's ouster from India, CMC's core strength lies in maintenance and support. The country's first commercial computer network, Indonet, was developed by CMC, which has also developed considerable expertise in data communications software as well. Its expertise in designing and building multi-modality communications networks involving satellite, microwave, UHF/VHF and fibre optic links make CMC a unique player in India that combines software and hardware skills.
The mainly export-oriented TCS, on the other hand, has virtually no presence in the Rs 9,500-crore domestic market for IT services, with an estimated Rs 250 crore or 7.9 per cent of its revenues coming from it.
CMC is an important player in the domestic market with over Rs 442 crore or 83 per cent of its total revenue during the last fiscal coming from this market, representing a 4.6 per cent share of the total market.
CMC has the government as its major customer. As it is, the government accounted for 34 per cent of the total domestic IT market last year. CMC is the preferred vendor to public sector banks, which together account for 16 per cent of the domestic IT market. In maintenance and support, which is a Rs 450-crore domestic market, CMC is unrivalled with an overwhelming 70-per cent market share.
Be it the railways, power systems, ports and cargo, airfields, agriculture, games management, health services, mining, stock exchanges, education and training, communications and network consultancy, image processing, Internet and Intranet, banking and even vegetable markets, CMC has been providing IT solutions. CMC's worldwide clients include GE, Digital, CDC, Silicon Graphics, Sun Microsystems, Apple Computer, NCR (AT&T) and London Underground.
TCS, which derives most of its revenues from the global market, has grown faster than the global market, posting a compound annual growth rate (CAGR) of 31 per cent during the last five years. But the US slowdown could impact its medium-term growth and reduce CAGR by a few points. Maintaining 30 per cent-plus growth rates on a growing revenue base will also be a tough task. Therefore, owning a domestic company like CMC, which operates in a fast-growth market such as India, is thus a good move by TCS to insure against a long-term decline in growth rates.
Nevertheless, CMC has under-performed, registering a mere 22 per cent CAGR for the last five years. CMC is strong in Electronic Data Interchange and building government networks, which it could leverage in addressing private sector network markets.
So far, CMC has been the 'preferred vendor' to the government and public sector undertaking. Since software buyers tend to be loyal to their vendors, CMC's established relationships with the government and PSU clients are likely to continue to bring in new business in the future.
Thus, TCS's acquisition of a controlling stake in CMC is a steal - it will definitely work towards TCS's advantage.