The 5,000 crore TCS IPO would catapult the company to be one of the biggest wealth creator in the country
With the much-awaited Initial Public Offer (IPO) hitting the capital markets on today, Indian investors' wait to capture a pie of the software giant is finally over. The attractive price band for bidding being fixed between Rs775 to Rs900 per share, is a windfall for investors in the share bazaar, who had pegged it at Rs1,100 per share as the upper limit.
The Rs5,000-crore IPO opening coincides with the birth centenary of JRD Tata, who was at the helm of the Tata group for over four decades. The issue closes on August 5, 2004 and is attractively priced for investors including those from retail segment, according to merchant banking sources.
This would result in a minimum over subscription of over five times, they said, adding, this would catapult the company to be one of the biggest wealth creator in the country.
TCS will offer 5.54 crore equity shares of Re one each, including a fresh issue of 2.27 crore shares, in its IPO through a book building route.
The issue also comprises offer for sale of 3.26 crore shares by Tata Sons Ltd and certain other shareholders of TCS, and a further greenshoe option by Tata Sons for 8.31 lakh shares each.
The authorised share capital of the company is Rs60 crore and the current paid up capital is Rs45.55 crore. The equity capital after the offer would be Rs47.83 crore, according to the prospectus filed with the market regulator Securities and Exchange Board of India.
Tata Sons is off-loading 3.17 per cent of pre-offer capital (1.44 crore shares) followed by Jamsetji Trust 2.09 per cent (95.31 lakh), Navajbai Ratan Trust 1.2 per cent (5.46 lakh), Shapoorji Pallonji Mistry and Cyrus Pallonji Mistry 0.28 per cent each (12.61 lakh).
Kalimati Investment Company Ltd is offloading 0.09 per cent (4.13 lakh shares), Indian Hotels Company Ltd 0.04 per cent (two lakh) and Camco Investment and Finance Ltd 0.02 per cent (83,231).
TCS became India's first billion-dollar software firm in revenues last year. Its revenues for the fiscal ended March 31, 2003, touched Rs50.12 billion ($1.04 billion), up from Rs41.87 billion ($908 million) in fiscal 2001-02.
The company manages projects for over 1,000 clients in over 55 countries and employs nearly 28,000 software professionals across the globe.
According to the prospectus, TCS said that a restriction and 200 per cent cut on the number of H1-B visas for Indian nationals and a backlash against outsourcing in the US might adversely impact its future prospects.
Over 60 per cent of TCS' revenues are from its businesses in US and is funnelled in through both onshoring and offshoring
"Most of our employees are Indian nationals and providing services in US, Europe and other countries depend on our ability to obtain necessary visas and work permits," the prospectus says.
TCS software professionals work in US on H1-B or L-1 visas, and with that country reducing H1-B visas on October 1, 2003 to 65,000, from the earlier 1.95 lakh, would limit the company's ability to conduct operations in US.
Further, US government has also increased the level of scrutiny in granting visas, apart from hiking visa-processing fees.
The demand for H-1B visas would "continue to be high," but these restrictions would make it difficult to obtain "as many H-1B visas as in the past," it added.
TCS said it was possible that proposed legislation in US would impose stringent laws on the granting of H1-B and L-1 visas, which would have an "adverse impact on our business and profitability."
The software major also said that political opposition to outsourcing in US and other countries where it has a presence could adversely affect its business.
TCS plans takeovers
TCS is planning to explore the possibility of acquisitions after launching its IPO, and is believed to be scouting for acquisitions in countries like Latin America and China, according to senior executives of the company.
The company would also use the proceeds to restructure Tata Sons balance sheet and support the group's new business initiatives. These would include floating of new companies and increasing the group's stake in existing entities.
The group holding entity has a debt of around Rs3,500 crore and book value of its investment worth Rs6,000 crore, which is expected to be restructured in the balance sheet.
Leading wealth creator
TCS will lead the pack of wealth creators, at the top end of the price band, with a market capitalisation of Rs43,000 crore. The software major is expected to garner a staggering Rs43,000 crore, merchant bankers said.
With the addition of TCS' market capitalisation, Tata Group's total market capitalisation would cross Rs one-lakh crore, a rise from Rs57,664 crore posted in fiscal 2003-04.
TCS, among individual private sector companies, would be second only to Reliance Industries Ltd, which has a market capitalisation of Rs75,132 crore, but ahead of Bharti Tele-Ventures Ltd (Rs28,662 crore), Reliance Energy Ltd (Rs13,431 crore) and Tata Motors Ltd (Rs11,866 crore).
Analysts at Bombay Stock Exchange believe that by 2005-06, TCS would "overtake" Reliance Industries to become the number one wealth creator amongst all individual companies in the country.
TCS' vision to become one among the leading global 10 companies by 2010, would also help improve its turnover and profits sharply, similar to that witnessed during the last
Moreover, like Wipro, TCS too in the medium term will attract a P/E multiple of 40 plus, they opined.