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TATA CONSULTANCY SERVICES IPO
Discussion & Analysis | Investment Banking

Submitted By Amartya Dey 12408 Deepak Poddar 12419 Rahul K 12438 Surajsinh Gaikwad 12456

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01 Net Worth-Consolidated ( Crores) 15700.01 38645.73 Question 3: What is the debt -equity structure at start and at end? Financial Year 2008-09 2012-13 2008-09 Equity No.72.10.55 1556.10.20.498 195.98 .86 295.86.86 195. of Shares Outstanding 97.86.498 Debt Secured Loan Unsecured Loan 2012-13 Equity No.85 Market Capitalization ( Crores) 52703 304710 Question 2: What is the net worth of the company at start and at end? Financial Year 2008-09 2012-13 Share Capital (Crores) 197.72 Reserves & Surpluses (Crores) 15502.46 crores INR 1. of Shares 195.996 Debt Secured Loan Unsecured Loan 129.996 Market Price (Last Trading Day) 538.Tata Consultancy Services IPO Question 1: What is the market capitalization of the company at the start and the end? Financial Year 2008-09 2012-13 No.72 Debt (in crores) 48.44 crores INR 11.72.13 130. of Shares 97.20.52 crores INR Face Value 1 36.15 38350.69 crores INR Face Value 1 Equity (in crores) 97.

one month before and after. The Market Price of the share on the date of listing and one month post it was as follows: Date Of Listing 25th August 2004 Listing Price 1049 Post Month Date 25th September 2004 Closing Price 987.95 The P/E multiple of the company on the basis of the EPS for the year ended 31st March 2004 is as follows: EPS: 47.08 3477. and the same has not been used till date.14 20.37 (Excluding Exceptional Items-Consolidated) Date 25th August 2004 25th September 2004 Market Price 1049 987. but not with cash (Most probably did not want to reduce cash balance and it anticipated that it could generate adequate returns – good enough to service the increased equity) .900 per share.85 The company did not raise any money via the FCCB mode initially. what was the exchange rate prevailing before the placement. Bonus. Question 5: At what price did they place equity. value of equity change with change in Exchange rate? The Price Band for the IPO of TCS Limited was fixed between Rs 775.This is why the company issued bonus shares. IPO. FPO. There were no other capital market activities that were undertaken by the company during the period under consideration. The company wanted to reward its shareholders.54 No. after and now? How does the value of the firm.Y. i. ADR/GDR.43 The Company was listed on the NSE on the 25th of August 2004. and what were the book value. 2009-10  Bonus Issue o The company issued fully paid-up bonus shares during the year.91 72..Question 4: What was the capital market activity of the company during the period.per share. FCCB. .86 crore equity shares. If it is an FCCB. The Bonus issue was a 1:1 issue.95 P/E Multiple 22. of Shares Outstanding 36440002 480114809 Book Value Per Share 12. The Respective Book Value’s prior and post issue were as follows: Financial Year 2003-04 2004-05 Net Worth (Crores) 47. market price and P/E multiple at the point of placing. Rights. The issue was finally completed at a consideration of Rs 850/. private placement of equity to institutions and promoters? The Capital Market activities of the Company during the period were as follows: F.e. resulting in an issue of 97.

Tata Sons has three other operating divisions:  Tata Economic Consultancy Services .Question 6: Discussion and analysis about the IPO of TCS in 2004 Issue Summary Type Size Price Face Value Shares on offer Issue opens Issue Closes Minimum Subscription Lead Managers Listing Promoters Promoters post issue holding Issue Structure QIBs Number of shares % of net offer to public (non-employees) Minimum bid/ Application size In multiples of Maximum bid/Application size 29. 50.000 Public issue. 5. as said by Ratan Tata.840 25% 7 shares 7 shares Rs. 2004 7 shares JM Morgan Stanley.944.486. which holds around 90% of the outstanding pre-offer equity shares. In addition to the TCS division.001 7 shares Not exceeding the size of the offer Retail Investors 12. 50. 775 to Rs.45 million July 29.e.) To create a public trading market for the equity shares of the company by listing them on the stock exchanges To utilise net proceeds of the fresh issue to pay transfer consideration of Rs 23 billion to Tata Sons To enhance visibility and brand name To use their equity shares for acquisitions Promoters TCS is promoted by Tata Sons. JP Morgan BSE and NSE TATA Sons Limited 82. 100% Book Building Rs. The principal business of Tata Sons is investment holding and TCS is one of its major operating divisions.70% Note: 10% of the shares on offer (i. Reasons for taking TCS public       To project the company as a private sector IT major in the global markets To provide a separate corporate identity (The TCS division had been functioning on the principle of a separate commercial entity and was paying royalty for use of Tata's brand name till now. 50.001 7 shares Not exceeding the size of the offer Non-institutional Investors 7. 1 per share 55. 2004 August 5. 43 billion to Rs.410 60% Rs.090 15% Rs.476. DSP Merrill Lynch. 900 per share Re. 50 billion Rs.45 million shares) are reserved for employees of TCS.

5 455.4 million shares on offer. 775-900.764 Number of shares (Million) 455. The Offer Price was determined on the basis of the demand from investors through the BookBuilding Process and is justified based on the above accounting ratios.7 million shares is a fresh issue. while the remaining portion of 22. A study on the IPO Reasons to Apply Management Experience Reasons not to Apply Cash crunch as it has to pay Rs. Through the book-building process.7 million shares are “Offer for Sale” by Tata Sons.625 11. a subsidiary of Tata Motors Low attrition at 6. the price range that was discovered per share: Rs. 1.45 Weight 1 2 3 Note: Based on “Capital Market” Vol.90 Pro-forma profit after Indian tax (after restatement) (Rs.94 25.  Tata Financial Services Tata Quality Management Services The equity shares of Tata Sons are not listed on any stock exchange. 2004 for the Category segment Computers-Software-Large. XIX/04 dated April 26 – May 9. Million) 8.20 28. Charitable trusts hold the largest portion (around 66%) of its outstanding equity shares. and Tata Technologies.14 25. The proceeds from the former would go straight to the books of Tata Sons.450 11.) 18. Tata Elxsi.1% in FY 2004 Study of the price of the IPO and the cash crunch Weighted Average Earnings per Share (EPS) Year Fiscal 2001 Fiscal 2002 Fiscal 2003 P/E Multiple Serial Number 1 2 3 Ranking Highest Lowest Average Industry Composite Industry P/E 40.5 455. .5 Weighted Average EPS (Rs. around 32. and would not be added to the balance sheet of TCS. The face value of the Equity Shares is Re. 23 billion to TATA Sons Huge outsourcing opportunity Decreasing cost advantage Scale advantage Political concerns Less leveraged on the USA as compared to Conflict of interest of TCS’s promoter TATA Infosys and Satyam Sons – Tata Infotech.80 6. Out of the 55.83 24.

.” (Red Herring Prospectus) It is interesting to note that many analysts had pegged the price at Rs. If we add the cash available to TCS on its books i.67. while that of Wipro was Rs.20 while that for Satyam was 20. Rs. Tata Sons chairman Ratan N Tata told reporters on Wednesday. we find the EPS for the year 2004 to be Rs. the holding company of the group. even if TCS offered the fresh issue at the highest price i. (Source: http://www.19 per share.26 per share would be 33. the P/E multiple would be 29. 1100 per share as the upper limit. the P/E multiple of Infosys was 31.atimes. while at the price of Rs. the P/E multiple of TCS would be 25. To be able to pay the total consideration of Rs. Infosys was much better poised to make acquisitions and expand considering its cash reserves. The TCS division had been functioning on the principle of a separate commercial entity and was paying royalty for use of Tata's brand name till now. Rs. though in terms of revenues and several other parameters.81.6 billion.1 million) as part of a net asset transfer after its initial public offer (IPO).90.Tata Consultancy Services (TCS) will pay Tata Sons Ltd. which we currently expect to be approximately 6% per annum. 1. would be payable to Tata Sons.40. 21.26 per share. at the same period the cash equivalent in the books of Infosys was Rs. 1013. Then the P/E multiple at Rs.7 billion. the total will amount to only Rs.56 which is higher than the average industry composite P/E multiple of 28. which is higher than the average industry composite. 1. 30. TCS shares have to be sold at Rs.e. it had been priced correctly at a discount to the latter because of its cash crunch. TCS might be doing better than Infosys. Rs 23 billion (US$497. 1 billion. During the same time. It is also interesting to note that though the cash equivalent of TCS in this period was only about Rs. At the price of Rs. 23 billion out of the fresh issue of equity. even then TCS falls short by Rs.html) Now. Thus. Using regression. 900 per share.4 billion. 26. Thus. 775. he said.com/atimes/South_Asia/FG23Df04. the P/E multiple of TCS would be at a discount to that of Infosys’. 900.e.. interest at mutually agreeable commercial rates..6 billion.6 billion. which would also include use of the group's brand identity. Quote: The Rs 23 billion is a consideration for transfer of TCS division to a corporate entity TCS Ltd. “In the event that payment of the consideration is delayed beyond the period of three days from the date of receipt of trading permission from the Stock Exchanges for the Equity Shares. 20. 1013.

a lot of rush to get to market. . Rule 19 (2)(b) provides that a company can get listed with just 10 per cent holding with the public provided the minimum net offer to the public is Rs 100 crore (Rs 1 billion).Rationale behind going for the IPO Fund Raising Options Debt Equity From Banks & FIs IPO FPO Public Issue of Bonds Rights Issue and Debentures Preferential Issue ECB ADR/GDR Hybrid Various forms of Convertibles FCCB & FCEB In India Outside India “What you got in China is a lot of entrepreneurship.htm) Considering the objectives of the company to “create a public trading market for the equity shares of the company by listing them on the stock exchanges” and “use their equity shares for acquisitions”.thehindubusinessline. Note:  Prior to 4th June. In India. but Ms Charlotte’s observation needs to kept in mind. In India. Because the markets function differently in India and companies have been able to get a lot in their early stage capital from the local market. it could have been much difficult for TCS to go public in the USA. while the rest would remain with Tata Sons and others. a minimum of 20 lakh (2 million) shares are offered to the public in an IPO through book-building method and allocation to qualified institutional buyers is 60 per cent of the size of an issue. Post offer only 11. it does make sense to go for listing in Nasdaq. Another reason for going for domestic issue alone would be the percentage of equity that is intended to be sold by the company at that point. and so does the market know the Tata group. TCS would prefer going for a domestic listing only because of the stringent norms that need to be followed in the USA exchanges.” -Ms Charlotte Crosswell. Considering the Rs. The norms to be followed in the Indian market are much lax and Tata Sons knows the market very well. debt stops being an option.in/bline/2005/11/15/stories/2005111502590300. 2010. Considering the fact that most of the business of the TCS is based out of the USA. but it was possible in India because of its brand equity and the confidence of the investors in the Tata brand name and the Tata connections. They are registering in Cayman Islands and through that listing on Nasdaq. 23 billion consideration payment and the consequent cash crunch. a company has to list in the domestic market before being able to list in a foreign market or go for simultaneous domestic and overseas issues. Also companies don't list locally out of China and a Nasdaq listing is their first step into the capital market. The same cannot be said with confidence about the “Tata” brand in the USA. The only options that thus remain are an IPO in the domestic market or go for a listing in a foreign market.6% of the shares would be with the public. 2005 – The Hindu Business Line) (Source: http://www. a lot of companies prefer to step into the capital market through a domestic listing. Head of Nasdaq International (November 15.

69 times and received a total application amount worth Rs 34.e.. Placement Impact “India's largest IT company.420 crore (Rs 54.54 crore (55.31 million (greenshoe) = 63. the investors and the shareholders. The issue also comprised an offer for sale of 3.220.45 million + 8. 2004 and January. 2013.22 million shares as opposed to 455. and a further greenshoe option by Tata Sons for 8. 2009 after a bad 2008-09 FY.76 million The shares of the Company were issued at a face value of Re 1 per share and a share premium of Rs 849 per share.26 crore (32. 2008 that the share price went below Rs. offered 5. Thus. From the IPO issue of TCS. Post Placement Impact The stock started trading on 25th August. 370 – 400 range (because of the stock split) for sometime but gradually picked up and is currently trading in the range of Rs. This is thus anot her reason because of which TCS went with the domestic listing route through IPO only. 2004 and it was only in the month of January. as of June 30. The TCS IPO created a record as the IPO was oversubscribed by 6. The company raised about Rs 5. public shareholding means equity shares of the company held by the public and not the shares held by the custodian against depositary receipts issued overseas. . Currently. the IPO issue has been a huge success for the company.” (Source: http://www. 2006). 2008 was Rs. Post this bonus issue. 850 which was the issuing price during the IPO.20 billion) through the IPO.htm) Total shares issued: 55. There has been no follow-on offering from the Company. 2043 (in the month of May. in its initial public offering through a book-building route.5 shares during the IPO.996 shares outstanding i. as per the guidelines.7 million) shares. The company again went for a bonus issue of 1:1 on June 18.27 crore (22.000 crore (Rs 340 billion) as against the issue size of Rs 5.rediff. TCS had 1. The Rs 5. 1900 – 2000. The maximum share price between August.000 crore.6 million) shares by Tata Sons Ltd and certain other shareholders of TCS. This is spectacular considering the fact that the company went for a bonus share issue of 1:1 on August 9. including a fresh issue of 2. 1957. 2006.com/money/2003/feb/06tcs.957. it is clear that it just wants to list in the exchange but with a public shareholding close to the minimum possible. Tata Consultancy Services Ltd.000 crore (Rs 50 billion) IPO opening coincided with the birth centenary of JRD Tata.4 million) equity shares of Re 1 each. the share traded in the Rs. To go for a simultaneous issue in the domestic and the foreign markets would thus mean a further dilution of the promoters’ shareholding.Also. which is also the last of its kind till date.000 shares each.310. who was at the helm of the Tata group for over four decades before Ratan Tata took charge.

cmlinks.internationallawoffice.aspx Note: Companies normally go for reverse stock split to make their market offering look more attractive to the potential investors.com/pub/nim/nimshow. But this was not the case with TCS which went for a stock split of 10 shares with a face value of Re. The company could not have asked for more! Sources:  http://www. The over-subscription says it all! No better option considering the objectives and the norms and guidelines.aspx?g=3a668824-322c-4fb4b475-316b375bcec3  http://www.com/newsletters/detail.  To encourage retail investors for investing  Higher the volume. TCS was reserving 10% of the shares for its employees. 10. There could not have been a better option.Impact Measurement The pricing and other parameters have been rated below on a scale of 1 to 10: Serial Number 1 2 3 4 5 Parameter Pricing Product Design Marketing Selection of Market Post Placement Impact Score 8 10 10 10 10 Reason The price could have been set higher than Rs. 850.asp?code=5400  http://www. 1 for every share with a face value of Rs. The most probable reasons are:  To rub the employees the right way. the more the better. the better the price discovery by the market. .com/investors/investor-faq/Pages/default.tcs. higher the trading volume! The higher the trading volume.

13 4.59 12.43 5. let us consider the share holding pattern of TCS over the last 6 years shown below.  The stake of foreign institutional investors (FIIs) has increased substantially from about 7.banks.  The promoter’s stake is mainly held by Tata Son’s Ltd which has the largest stake in TCS.12 2012 73. body corporates. o This is one of the reasons which must have contributed to the reduction of the Promoters’ holding across the years.  Securities Contracts Regulation Rule 19 (2) (b) was amended on 4th June.13% in 2013. the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum.86 2010 74. etc) 2007 81. To understand the secondary market operations better. UTI.63 5.97 7.etc) Foreign institutional investors Non institutions(individuals.  The stake of the individuals and body corporates has declined over the last 6 years.84 2011 74.36 2009 76. 2010 to make the following necessary: o The minimum threshold level of public holding will be 25% for all listed companies.45 7.19 14.01 4.65 4.41 10.8 16.79 6.2 2013 73. One of the reasons why the promoter’s stake has declined over the last 6 years is because there were a number of block and bulk deals in the BSE and NSE through which Tata Son’s has sold its stake in TCS as shown below: .88 2008 77.TCS Secondary Market Analysis Tata Consultancy Services Ltd (TCS) is an Indian public Ltd company.55 5. o Existing listed companies having less than 25% public holding have to reach the minimum 25% level by an annual addition of not less than 5% to public holding o For new listing. its shares have been actively trading in both the exchanges.46 The following observations can be made about the share holding pattern:  The promoter holding has declined over the last 6 years.05 8.93 12.95 5.06% in 2007 to 16. Share holding pattern in %(as on March31 each year) Promoter' holding(mainly Tata Son's) Institutional investors(mutual funds. Its shares are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).06 6. if the post issue capital of the company calculated at offer price is more than Rs.12 7. Ever since TCS went for an IPO in 2004.LIC. 4000 crore.3 10 5.21 7.

680 1.North Asia Citigroup Global .21.Mauritius Barclays Global .4 386 386 500 500 935.962 1012.Singapore Shapoorji Pallonji & Co. Tata Limited NSE Block Deals Navajpai Ratan Tata Trust Tata Investment Corporation Ltd Barclays Global . Rajkot Shapoorji P.495 1020.08 SELL 1. Ltd.74.718 1020 SELL 82.84.Mauritius Citigroup Global .52.Mauritius Citigroup Global . Rajkot Cyrus P.04 SELL BUY BUY SELL BUY SELL BUY SELL BUY SELL 1. SPS Capital & Money Management Ishares BSE Sensex Mauritius Co. The Royal Bank of Scotland Deal S P P S P P S S S P S P S P S P P P S S Quantity 6900000 5626457 7095920 8500000 249626 1542374 896000 896000 400000 400000 228515 228515 234710 234710 234710 234710 249626 1542374 896000 896000 Price 1285 1285 1059 1059 1890 1890 1890 1890 928 928 755 755 781 781 756.Mauritius Swiss Finance Corporation .760 6.4 1012.82.672 1.00. Ltd. Mistry BSE Block Deals SPS Capital & Money Management Shapoorji Pallonji & Co.000 1.760 1. Rajkot Shapoorji Pallonji & Co.5 756. Rajkot Shapoorji Pallonji & Co.5 1020 1020 .84.5 935. Mistry Cyrus P.03.82. Shapoorji Pallonji & Co.52.000 1. Mistry Shapoorji P.00.672 6.680 1. Citigroup Global . Mistry NSE Bulk Deals HSBC Global Investment Funds Tata Sons Ltd.962 1.Mauritius Credit Suisse .51.Mauritius ABN AMRO Bank Citigroup Global .324 615.Bulk and Block Deals of TCS on BSE and NSE BSE Bulk Deals Deal Date 06-02-2007 06-02-2007 14-11-2006 14-11-2006 24-03-2006 24-03-2006 24-03-2006 24-03-2006 30-09-2010 30-09-2010 09-06-2010 09-06-2010 14-01-2010 14-01-2010 13-01-2010 13-01-2010 24-03-2006 24-03-2006 24-03-2006 24-03-2006 31-Oct-07 31-Oct-07 06-May-09 18-Dec-07 18-Dec-07 25-Jun-09 25-Jun-09 30-Jul-09 30-Jul-09 01-Oct-10 01-Oct-10 19-Sep-11 19-Sep-11 Client Name Tata Sons Ltd.98.98.5 1890 1890 1890 1890 BUY 50.Mauritius Shapoorji Pallonji & Co. Copthall Mauritius HSBC Global Investment Funds Tata Sons Ltd.

8 FY12 2453. “A consistent financial performance by TCS and its high market valuation enabled Tata Sons to act as the investor and lender of last resort to group companies.5 1640.” – Business Standard . the Tata group's holding company.8 0 446. For example. Some facts that highlight the point:     Tata Sons has invested Rs 34. when Tata Motors’ Rs 4.8 4662. Thus. BS Estimates For example:  To finance the Corus deal in 2007.9 178. Tata Sons earned around Rs 10.9 FY10 1226. 1000 crores. Another Rs 9100 crore was raised by selling TCS shares (including IPO). since 2004.3 3032.6 FY08 740.2 5772.5 1969.1 FY06 540. One of the objectives for taking TCS public was to use their equity shares for acquisition.3 * Dividend from TCS.9 0 361. the group’s most valuable company.2 892. the group's biggest company by market capitalization. TATA SONS: HOW IT EARNED AND SPENT (Rs crore) Year Dividend* TCS Shares sale ** Borrowings Investments FY05 445.5 9111.9 4712.7 3873.8 0 1661.5 FY09 1019.Another big reason for selling the holding by Tata Sons has been to fund the bulk on investments by Tata Sons in other group companies. A further Rs 11. and this is actually happening.000 crore in various group companies.  Tata Sons has sold around 1% of its stake in TCS.3 2451. It was sold through a bulk deal in NSE. including unlisted ventures.000 crore as dividend from TCS.4 crore in 2009.7 FY07 753. ** Proceed from sale of TCS shares including IPO Source: Capitaline. During the period. we see an alignment in the objectives for going for an IPO and the actions of Tata Sons.7 696. to help refinance a $2-billion bridge loan taken by Tata Motors.6 2610.2 2800 0 3241.145-crore rights issue in October 2008 devolved on promoters and Indian Hotels Company’s rights issue in 2008 received muted response from retail and institutional investors. It thus raised Rs. sold 1% stake in Tata Consultancy Services for Rs 701 crore.6 835.500 crore came from borrowings largely secured by pledging shares of TCS.6 1802. It was speculated that it was raising funds so that it can subscribe to the Tata Motors (TML) rights issue.  In 2008.7 FY11 2886. Tata Sons diluted nearly 1% of its shareholding to generate over Rs. Tata Sons. 633.

indiatimes.com/article/technology/tcs-provided-wings-to-tata-sdreams-112122400128_1.com/2009-05-07/news/27664532_1_hvtransmissions-jlr-loan-tata-motors-finance .Source:     http://www.html http://articles.com/2008-10-08/news/27700123_1_tata-sonstata-sons-rights-shares http://articles.business-standard.economictimes.com/article/companies/tata-sons-raises-rs-1000-cr-throughtcs-stake-sale-107020901082_1.html) http://www.indiatimes.business-standard.economictimes.

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