S. Ramadorai, CEO TCS: Leveraging the Tata equity

Excerpts from an interview with Tata Consultancy Services Chief Executive Officer S. Ramadorai:

On why TCS needs to go public.

The primary driver is that you can use stock as a currency to grow inorganically. It could be advantageous to the Tata group as well. Then, many people come up to me and say that if TCS goes public the market will take a different turn. So people see that as a good benefit to the market also.

On the Tata brand vis a vis the TCS brand

The fact of the matter is that we are a part of the Tata group. And the Tata brand clearly stands for certain recall. It's a large, ethical, professional group, in multiple areas of business. It's a very progressive group. It's a brand that's well known in India. So the question is when TCS goes public, these powerful messages of the Tata brand are as important as TCS itself. So we will be able to mix both and project an image of being a Tata brand as well as a TCS brand.

If you go to any customer abroad, some people will say, "these people are from Tata," some will say "these are from Tata Consulting," some will say, "TCS". It is all used synonymously. Some guys can never get it. Tata Consultancy Services is impossible for many Americans to say. They can't even say my full name. Ram is the only name they know.

On the pressures of being a publicly listed company.

Pressures will be there, will increase. But at the end of the day we are going to disclose as per regulations, as per norms of listing. The disadvantage is that there is unnecessary pressure too with regard to the implications of disclosures on a quarter to quarter basis.

What should matter is the topline and bottomline growth at the end of the year. If you want to bet for the long term, come to TCS. Here is a company that has got a wealth of talent, clients who are world class and that is a global organisation.

On the acquisitions strategy

Acquisitions are not just necessary to increase the topline. They have to fit into our strategic thinking. We have to ask: Is the acquisition adding some pure technology capabilities in terms of skills or assets; is it adding domain capabilities that we want to enhance; is it adding some delivery capabilities that are region-specific? Secondly, the most important thing is to integrate the acquisition very seamlessly. That's the biggest challenge. Most acquisitions that fail do so because the integration doesn't happen. It's no point acquiring a company with tremendous domain and consulting capabilities, but whose people disappear after the acquisition.

On the Lehman Brothers contract TCS recently bagged along with Wipro.

Lehman brothers undertook an evaluation that went on for close to nine months. They did some pilots, experienced our consultants, our delivery methodology, and their comfort level with not just our senior executives but even our operating level people. It was an elaborate process of shortlisting, after which they finally selected two Indian companies (TCS and Wipro). Today people talk about being a $50 million or $70 million or $100 million order. It think it is premature to put a figure.

The Billion-Dollar Riddle

Make it $12 billion (Rs 60,000 crore). Or maybe, even $20 billion (Rs 100,000 crore). But, as one prominent Mumbai-based investment banker points out, "TCS' valuation will always be a moving target. Its intrinsic value may be constant, but the market value will keep changing depending on market conditions and sentiment for it stocks.'' That's why at the peak of the tech boom one investment bank had reportedly put a figure of a mind-boggling $22.7 billion (roughly Rs 115,000 crore) on TCS. These days it would be much lower, and deal-makers reckon that Rs 60,000 crore would be a fair instrinsic value of Tata's crown jewel. Based on the 2001-02 estimated net profits of Rs 1,300 crore, that would give TCS a price-earnings multiple of around 65. Assume a conservative 22 per cent increase in profits by 2002-03-it's been a tough year, but you can't expect less than that from TCS-and the forward P/E (for the year-ended March 2003) would reduce to a little over 40. That may be slightly higher than the P/E of Infosys, and pretty much similar to Wipro's. Eventually, though, it all depends on when exactly TCS takes the plunge, and the sentiment prevailing at the time. But we'll safely stick our neck out to say that TCS' valuation can't go below Rs 60,000 crore.

The Human Factor

Infy's campus: Setting global quality standards

K. Vijay Rao, managing director, epicenter technologies, has a well-defined vision for his business. "I want to be the Infosys of call centres," he gushes. In other words, he wants to build a transparent, non-bureaucratic and people-friendly organisaiton-like Infosys.

Rao recollects not too long ago a chance encounter with Narayana Murthy on a flight. Rao was then a bit apprehensive that Infosys was planning to set up its BPO operations in Mumbai, and feared the one-year-old receivables management firm would soon lose people to Infosys. Rao, however, was relieved when Murthy told him that he had decided to opt for Bangalore instead. Predictably, Bangalore's higher quality of life mattered more to Murthy.

Such feel-good tales of HR don't emanate from the TCS headquarters. In sharp contrast to the well-oiled marketing machine that Infosys is, TCS has been content to stay away from the arclights. So, with not much information emerging out of the IT giant, the perception of opaqueness has stuck with TCS.

What's more, a 21,000-strong workforce also makes it appear a lumbering giant, unlike an Infosys or a Wipro, whose employee-strength is half of TCS.

A year-and-a-half ago, TCS kicked off a "Transformation and Change Management Exercise", for which it hired a VP with advertising and FMCG industry experience. Decentralisation and empowerment became the buzzwords. Yet, it would be premature to expect TCS-ers to start gushing about the way their company treats them. Not yet.

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