Business Today Net Special

Why Everyone Wants CMC

It's not the most happening IT company around, but Compaq, H-P, TCS, and Wipro are fighting it out for a 57.3 per cent stake in the company. Just what is it that makes CMC the hottest company in town?

By Ashutosh Sinha

S.S.Ghosh, Chairman, CMC Neither does CMC find a mention in "the most happening infotech company list", nor are its marketing skills comparable to that of Compaq or Hewlett-Packard. And it hasn't even been able to seize the global infotech services opportunity the way Wipro and Tata Consulting Services (TCS) have. CMC's growth rates have also not matched with that of any of the major Indian infotech services companies. So, when the government decided to divest 57.3 per cent of its 83 per cent equity in CMC, with profits of Rs 12.7 crore on a turnover of Rs 468 crore in March 2000, the disinvestment offer was not expected to witness the biggies falling over one another to buy into the company. Estimates suggested that the March 2001 revenue of Rs 530 crore-a mere 13 per cent increase in the last four quarters-is far below the rates at which larger infotech companies are growing, despite higher revenues.

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However, by March-end, the list of prospective suitors resembled a star cast-Compaq, Hewlett Packard, TCS, and Wipro. None of those associated with the disinvestment process, including consultants KPMG and the 57-year-old CMC Chairman, S.S. Ghosh, were ready to comment on the ongoing exercise.

What is it that is making the biggies interested in CMC? With over 50 per cent of CMC's revenues coming from government contracts, CMC's worth, perhaps, is a lot more in the eyes of the prospective bidders. CMC's contracts with the state-run general insurance companies and Indian Railways is worth about Rs 70 crore. With very little margins, changing hardware maintenance vendors is not something that companies do very often. Hence, the Railways and other governmental organisations are a steady source of revenues for CMC. "In such a situation, you almost end up owning the customer," says Sanjeev Goswami, an analyst at SSKI.

Ghosh, who has been with CMC since 1978, does not like to be tagged as a company that thrives on government contracts only. "GoI is our largest client, and also the largest spender on information technology," justifies Ghosh. "The investors will be getting a company, which can be ramped up for domestic and international business."

Wipro and TCS, for example, earn large part of their revenues from overseas business, and this is where CMC can fit the bill perfectly. Ramping up for the domestic market, where margins are far lower compared to overseas markets, would not be the most ideal situation. "Hence," says Ghosh, "companies could take the contracts in India for creating a bench for the overseas market."

Says Goswami of SSKI: "CMC can help you get a good foothold in the domestic market." Agrees Deepak Shah, V-P (Finance), Hewlett-Packard India: "CMC has a very large services business, and that's the key to business today."

Well, if CMC indeed is as hot as its suitors would have us believe Yashwant Sinha should certainly have a reason or two to smile when its disinvestment is complete.

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