Monday, July 26, 2004
The House of Tata everywhere
While on the subject of the Tata group, I had safely predicted that the TCS IPO would create more buzz than anything the Tatas had pulled of earlier. Sure enough, the Tata group are the subject of profiles in the Economist (which focusses more on TCS) and BusinessWeek (which has a more well-rounded look at the group). In addition, BusinessWeek is also carrying an interview with Ratan Tata.
From the Economist...
Founded in 1968, TCS has long been a leader in the development of India's booming information technology (IT) industry. Indeed, it now claims to be Asia's largest IT company, with sales in the latest financial year of $1.5 billion and 28,000 employees of 30 nationalities working in 32 countries. They seem to like working for TCS: it has an unusually low (by Indian standards) employee attrition rate of about 6.5% a year. It pioneered offshore operations when it began working in America in 1973 and now offers services to firms spanning insurance, telecoms, retail and transport.
With clear advantages to be gained from going public, analysts have frequently questioned why Mr Tata did not take the plunge earlier—especially during the late 1990s software boom when the firm's sales were growing at nearly 60% a year, twice the current rate. One concern was that flotation would upset the balance of the group: TCS's expected market capitalisation will be nearly four times that of Tata Motors, one of Tata's leading five companies. But, with the benefit of hindsight, Ishaat Hussain, Tata's finance director, rationalises the delay: Indian tax reforms since the late 1990s have halved the corporation tax that the group must pay on the float and eliminated gift tax. The timing also fits in with Mr Tata's new focus on international expansion.
Now, the motives for TCS's IPO are something I have wondered about. Clearly, Tata Sons gains to benefit from TCS's float. They raise over a billion dollars which they can invest in the cash-gobbling telecom business and for their international expansion plans. What does TCS gain in the bargain? Of course, the other way to look at it is that TCS is finally answerable to its shareholders and if Tata Sons owns most of TCS, then maybe it all makes sense.
From Business Week...
The group's revenues are up 30% since 2002, to $12.8 billion last year, and profits have grown 60%, to $1.2 billion. Stock prices of the group's biggest publicly traded companies, Tata Motors and Tata Steel, have tripled in that period. And this summer, Tata is expected to raise $1.2 billion by selling 13% of Tata Consultancy Services (TCS), Asia's largest software-services player
Ratan Tata isn't satisfied: He wants the world -- not just India -- to embrace Tata products. So for the past four years he has been in global expansion mode. In 2000, Tata Tea Ltd. paid $435 million for Britain's Tetley Tea, a company three times its size, to gain a ready-made international brand. In March, Tata bought Daewoo's commercial truck operation for $102 million, with the idea of using Daewoo technology for his truckmaking operation and establishing a springboard into other Asian markets. In Britain, MG Rover Group Ltd. is selling Tata-built Indica compact cars under its own brand name, while Tata trucks ply roads from Malaysia to South Africa. The lodging division is expanding into luxury and business hotels around the world. And TCS is looking to buy software houses in North and South America.
BW also sheds some light on Tata's social conscience....
The frenetic activity represents a big change of pace for the old-world Tata group. Although the conglomerate has always been run by a Tata, family members own only a tiny stake in Tata Sons, the holding company that controls the group's ownership in the various enterprises. Instead, Tata Sons is run by a pair of trusts that get dividends from the group's operations. That money is deployed for social services such as education grants and health care for the poor. Very little wends its way back into the pockets of Tata family members.
PS: Tata is also strongly rumoured to be placing a $200 million bid for Tyco Global Network's assets.
From the Economist...
Founded in 1968, TCS has long been a leader in the development of India's booming information technology (IT) industry. Indeed, it now claims to be Asia's largest IT company, with sales in the latest financial year of $1.5 billion and 28,000 employees of 30 nationalities working in 32 countries. They seem to like working for TCS: it has an unusually low (by Indian standards) employee attrition rate of about 6.5% a year. It pioneered offshore operations when it began working in America in 1973 and now offers services to firms spanning insurance, telecoms, retail and transport.
With clear advantages to be gained from going public, analysts have frequently questioned why Mr Tata did not take the plunge earlier—especially during the late 1990s software boom when the firm's sales were growing at nearly 60% a year, twice the current rate. One concern was that flotation would upset the balance of the group: TCS's expected market capitalisation will be nearly four times that of Tata Motors, one of Tata's leading five companies. But, with the benefit of hindsight, Ishaat Hussain, Tata's finance director, rationalises the delay: Indian tax reforms since the late 1990s have halved the corporation tax that the group must pay on the float and eliminated gift tax. The timing also fits in with Mr Tata's new focus on international expansion.
Now, the motives for TCS's IPO are something I have wondered about. Clearly, Tata Sons gains to benefit from TCS's float. They raise over a billion dollars which they can invest in the cash-gobbling telecom business and for their international expansion plans. What does TCS gain in the bargain? Of course, the other way to look at it is that TCS is finally answerable to its shareholders and if Tata Sons owns most of TCS, then maybe it all makes sense.
From Business Week...
The group's revenues are up 30% since 2002, to $12.8 billion last year, and profits have grown 60%, to $1.2 billion. Stock prices of the group's biggest publicly traded companies, Tata Motors and Tata Steel, have tripled in that period. And this summer, Tata is expected to raise $1.2 billion by selling 13% of Tata Consultancy Services (TCS), Asia's largest software-services player
Ratan Tata isn't satisfied: He wants the world -- not just India -- to embrace Tata products. So for the past four years he has been in global expansion mode. In 2000, Tata Tea Ltd. paid $435 million for Britain's Tetley Tea, a company three times its size, to gain a ready-made international brand. In March, Tata bought Daewoo's commercial truck operation for $102 million, with the idea of using Daewoo technology for his truckmaking operation and establishing a springboard into other Asian markets. In Britain, MG Rover Group Ltd. is selling Tata-built Indica compact cars under its own brand name, while Tata trucks ply roads from Malaysia to South Africa. The lodging division is expanding into luxury and business hotels around the world. And TCS is looking to buy software houses in North and South America.
BW also sheds some light on Tata's social conscience....
The frenetic activity represents a big change of pace for the old-world Tata group. Although the conglomerate has always been run by a Tata, family members own only a tiny stake in Tata Sons, the holding company that controls the group's ownership in the various enterprises. Instead, Tata Sons is run by a pair of trusts that get dividends from the group's operations. That money is deployed for social services such as education grants and health care for the poor. Very little wends its way back into the pockets of Tata family members.
PS: Tata is also strongly rumoured to be placing a $200 million bid for Tyco Global Network's assets.
