TCS IPO: Sunny days ahead?

A few technology companies dipped their toes into the IPO pond and found that
the water was just fine-the recent addition to these ranks being the
much-awaited TCS public issue of 55,452,600 equity shares of Re 1 at Rs 850. The
IPO got listed at Rs 1050 and is currently rallying around Rs 975 on NSE and BSE

Excitement about the stock, which started trading under the Tata symbol from
the last week of August, is evident from the word go. The company received an
overwhelming response to the IPO and with 13 lakh bids, the issue got
oversubscribed 7.7 times. The retail segment got oversubscribed three times
while the non-institutional portion got oversubscribed 22 times. The company is
going for an additional greenshoe option of 8.3 million shares, meaning that the
company will sell 8,317,880 additional shares.

The IPO, however, secured only a comparatively dull response on day one. Not
surprising, considering the fact that the overall stock market itself was at the
worst it's been for several years. Also, TCS was floating a large number of
shares, and it was difficult for the market to absorb them instantly. Not to
forget the fact that it was the first IPO after the general elections and with
the new government in place, investors were actually testing the waters before
making any investment decisions.

Why the Rush?

Though other blue chip companies have come out with IPOs in the recent past,
none of them received the overwhelming response TCS got. Despite the much-hyped
ONGC IPO moving downward post listing, investors went ahead with TCS's IPO
because unlike PSUs like ONGC, which do not have financial autonomy, making it
difficult to take a call on future price movements, private sector players like
TCS have full control on their financial movements.

TCS scores on a peer-to-peer comparison with other technology companies too-it
has reported a per employee net profit of Rs 5.3 lakh as compared to Infosys'
Rs 4 lakh. Besides, the promoters control a stake of around 35% in Infosys
whereas the corresponding stake in TCS is 85%. The only part where Infosys has
an edge over TCS is in the cash portion, which is between Rs 150 to Rs 200 crore
for TCS, and Rs 2,500 crore for Infosys. In the case of Wipro, analysts say that
though the promoters' holding in the company is 80%, TCS being the largest
company would prevail over the other two in terms of market performance, price
and profitability.

No wonder then that analysts suggest the TCS IPO as a good investment and
advise investors to hold on to theirs when the stock gets listed. This issue is
not for making quick bucks and getting out, as there are definitely very good
returns in the long term. Analysts expect TCS to report earnings of Rs 42 per
share for the current fiscal. The reason its being considered the most
investor-friendly IPO is because of the company's strong fundamentals and
track record. That's the reason that Dalal Street is rating TCS as the third
most-admired company after ONGC and Reliance.

The funds raised by the issue would be spent on various technology
initiatives and, now that the company is also planning to grow inorganically
through acquisitions, that gives enough reason for investors to smile. The
company will use the net proceeds of the issue to pay the transfer consideration
of Rs 2,300 crore to Tata Sons, and that includes costs for using the 'Tata'
name.

Interestingly, union finance minister P Chidambaram also congratulated the
Tatas for the 'successful' IPO and expressed hope that it would help revive
the stock market. Whether the TCS stock has actually been able to unleash hope
for future issues, however, can be judged only after the market response to the
National Thermal Power Corporation and a few banks issues that are lined up for
IPO soon.

Rahul Gupta, CyberMedia News/Mumbai

Going Public

Public Issue of 55,452,600 Equity Shares of Rs 1 each consisting of:

• A Fresh Issue of 22,775,000 Equity Shares; and
• An Offer for Sale of 32,677,600 Equity Shares
• A Greenshoe Option of 8,317,880 Equity Shares
• Issue Opening Date: July 29, 2004 and Issue Closing Date: August 5, 2004
• Minimum application size 'Seven' Shares.
• Price band of Rs 775 to Rs 900 per share
• The Offer will constitute 11.59% of the fully diluted post-offer paid-up
  capital of TCS Limited assuming that the Greenshoe Option is not exercised
  and 13.33% assuming that the Greenshoe Option is exercised in full. After
  the completion of the Offer, Tata Sons will own approximately 82.69% of the
  issued Equity Share if the Greenshoe Option is not exercised or 80.95% if
  the Greenshoe Option is exercised in full.