The jewel in the Tata Group's crown will finally be showcased for public viewing. The much-awaited Tata Consultancy Services Ltd (TCS) IPO — the largest in the history of the Indian capital market — is finally set to hit the bourses in a few months with an offer size of Rs 6,000-7,000 crore.
JM Morgan Stanley, one of the three book running lead managers to the issue, filed the offer document with the Securities and Exchange Board of India (Sebi) on Thursday.
While the move reflects the Tata group's confidence in the capital markets, after the recent political uncertainty which saw the steepest fall in the Sensex, the timing of the issue will be decided post-Budget, depending on the favourability of the situation, said sources. The size of the issue itself would comfortably see it included in the benchmark Sensex once it is listed.
Tata Sons' director (finance) Ishaat Hussain said: "We have taken an important step in the process of the IPO. The precise timing will depend on market conditions."
In a 100 per cent book-built issue, 6.37 crore shares (including a greenshoe option of 83 lakh shares) of the face value of Re 1 will be issued in the IPO. This takes the price to about Rs 1,000 per share, which is at a premium of around Rs 999 per share.
The offer size is 13-14 per cent, of which QIBs (qualified institutional buyers) will be allocated 60 per cent, high networth individuals (HNI) will get 15 per cent and the balance 25 per cent will be allotted to retail investors. Around 5.5 lakh shares have been set aside for employees.
DSP Merrill Lynch and JP Morgan are the other book running lead managers to the issue. JM Morgan Stanley is also the market stabiliser of the issue, while Karvy Computershare Pvt Ltd is the registrar.
According to agencies, the post-issue equity capital of TCS will be around Rs 47.83 crore. Around 2.27 crore shares (excluding greenshoe option) will thus be fresh issuance, while the balance 3.26 crore shares will come from the offer for sale.
Agencies added that Tata Sons will offload 1.44 crore shares followed by Jamsetji Trust 95.31 lakh shares, Navajbai Ratan Trust 5.46 lakh shares, Shapoor Pallonji Mistry and Cyrus Pallonji Mistry 12.61 lakh shares.
Kalimati Investment Company Ltd is offloading 4.13 lakh shares, Indian Hotels Company Ltd two lakh shares and Camco Investment and Finance Ltd 83,231 shares.
"History is in the making. TCS is the largest IPO in the Indian capital market thrice in size as Reliance Petrol issue. People have been waiting for this IPO for the last six to seven years. Tatas were never in a hurry. There were lot of cross-holding and the company had to do some clean up exercise before going ahead with the issue. This issue is not for money raising but for pride," commented PRIME Database managing director Prithvi Haldea.
TCS, which is the pioneer of the IT services industry, is estimated to have revenues of over Rs 7,000 crore. It has been projected by analysts that the company would report a net profit of around Rs 2,000 crore for the current fiscal.
The holding company, Tata Sons, as part of its overall business reorganization plan, had decided that the corporatisation of TCS would be in line with global trends to achieve effective and focussed management, size, greater financial strength and flexibility, in the interests of maximising overall shareholder value.
Tata Sons had come up with a scheme of arrangement for the transfer of the TCS division to Orchid Print, which was approved by the shareholders of Tata Sons at an extra-ordinary general meeting (EGM) on January 3, 2003.
As per the scheme of arrangement, the consideration of Rs 2,300 crore constitutes non-interest bearing receivables of Tata Sons, which will become payable upon the successful completion of the IPO and shall be paid within three days, or such period as may be determined by the board of Tata Sons and TCS. The TCS IPO will thus bring a windfall for Tata Sons. An IPO would provide an opportunity to Tata Sons and shareholders of TCS to realise the value of their holdings through sale of their shares after TCS is listed on the Stock Exchange.
Last year, the Mumbai High Court had granted approval as per the scheme of amalgamation on completion of the IPO. Two years back, as part of a rights issue, 10 per cent was picked up by a few Tata group companies. Tata Sons holds the balance 90 per cent in Orchid Print. Orchid Print would be renamed TCS Ltd.
"The issue, which is large in size and with a big name behind it, can lead to a turnaround for the primary market. While people may not chase price but value, face value being Re 1 would make it affordable for small investors," Mr Haldea added.
"The issue could be around Rs 5,500-6,000 crore and price the people generally expect is Rs 1,000," he added.
While stating that the listing of TCS may not have any impact on other big IT companies like Infosys Tech and Wipro, Mr Haldea added that more money would be allocated to IT sector and some portfolio churning could be done by mutual funds. The money raised from the issue could be used for big acquisitions, he added.