Mumbai: With Tata
Sons having acquired a controlling 51 per cent stake in software
services behemoth CMC Ltd, Tata Consultancy Services (TCS), the
software services division of Tata Sons, proposes to begin the
process of strengthening and consolidating its position in the
Indian software services industry.
Tata Sons has also come
out with an open offer to acquire another 16.69 per cent stake in
the company at Rs 281.26 per share. The total value of the open
offer is Rs 72 crore. Tata Sons now holds 51 per cent share in
CMC, while the Government of India holds 32.31 per cent and the
public hold another 16.69 per cent.
For TCS, which gets a
majority of its revenues from the overseas, notably the US market,
this acquisition provides it with an opportunity to consolidate
its operations in India. It also indicates that the domestic
market is attaining greater importance for the company.
TCS CEO S Ramadorai said: We believe that the domestic market
has a tremendous opportunity for the company, and CMC already has
an established presence in India. The domestic IT services sector
is expected to grow in the medium- to long-term period at the rate
of 25 per cent CAGR till the year 2004.
CMC had recorded revenues
of Rs 657 crore in the year ending 30 June 2001. More importantly
for TCS, over Rs 442 crore or 83 per cent of its total revenue
during the last fiscal came from the domestic market, representing
a 4.6-per cent share. CMC also has a stranglehold on the
government market, which accounted for 34 per cent of the total
domestic IT market last year. It is also a preferred vendor to
public sector banks, which together account for 16 per cent of the
domestic IT market.
In niche areas such as
maintenance and support, which is a Rs 450-crore domestic market,
CMC is the undisputed king with an overwhelming 70 per cent market
share. CMC declared a net profit of Rs 32 crore in 2001 and its
profit registered a rise of 33 per cent at Rs 3.08 crore for the
first quarter ended 30 June as against Rs 2.31 crore for the
corresponding period last year. The company has also recorded a
28-per cent increase in revenue at Rs 90.30 crore for the quarter
as against Rs 70.34 crore for the same period last year.
The key areas in which
TCS is likely to benefit from the CMC acquisition is through CMCs
expertise in customer support, facilities management and hardware
and software maintenance. CMC also has expertise in executing
large turnkey projects; it has a strong research and development
focus and can offer a wide range of services with complementary
In trying to carve out niche areas, CMC has set up five strategic
business units for customer services, systems integration,
international operations, education and training and indonet (a
project). TCSs delivery capabilities can be used by CMC to mine
its international client-base for offshore work.
TCS, on the other hand,
provides information technology and management consultancy
services to organisations in over 50 countries across the globe.
It has a strong market in the US and employs over 14,000
professionals at 60 offices worldwide. Its development centres are
assessed at CMM Level 5.
TCSs key service
practices comprise e-business, application development and
maintenance, outsourcing, large projects, systems management and
Ramadaorai says CMC will
remain an independent entity within the Tata Group and will be
managed by TCS. It has been given the following key mandates:
1) CMC will have to confirm to a topline growth of 30 to 35 per
2) There will have to be improvements in margins.
3) Return on capital employed will have to be enhanced.
4) It will have to maintain and strengthen the domestic market
leadership in key service areas and will have to leverage key
technologies and domain expertise to strengthen international
Tata Sons will have four
nominee directors on the CMC board - S Ramadorai, (chairman), S S
Ghosh (managing director), Ishaat Hussain (director), R Ramanan
there will be four independent directors on the board:
C B Bhave, (managing director, National Securities Depository
Ltd), Dr K R S Murthy (former director of IIM, Bangalore,
director, ONGC and member, Disinvestment Committee), Surinder
Singh (ex-Cabinet secretary, GoI and executive director,
World Bank) and Shardul Shroff (partner, Amarchand Mangaldas
Shroff & Co).