The Tata way

‘Why wasn’t TCS floated dur­ing the IT boom?’

The Hindu Business Line - - THINK - SHASHANK SHAH

This has been a com­mon ques­tion asked by an­a­lysts, in­vestors and mar­ket-watch­ers for nearly two decades. The rea­sons ex­em­plify the Tata way of busi­ness. In May 2004, the NDA govern­ment lost the elec­tions. The BSE Sen­sex nose­dived from an all-time high of 6,250 to 4,300. In an un­favourable mi­lieu, TCS de­cided to go pub­lic in June 2004. In 2003, TCS had al­ready be­come In­dia’s first bil­lion-dol­lar soft­ware firm.

Though a much-awaited

IPO, its tim­ing raised ap­pre­hen­sions among in­vestors and an­a­lysts. Half a decade ear­lier, in the penul­ti­mate year of the 20th cen­tury, when val­u­a­tion of IT stocks was sky­rock­et­ing, it was the best time to float TCS as an in­de­pen­dent com­pany that was op­er­at­ing un­til then as a di­vi­sion of Tata Sons. The prom­ise of the op­por­tu­nity on hand could be un­der­stood from the fact that a sin­gle e-com­merce com­pany such as Ama­zon with a few thou­sands on its pay­roll com­manded a greater mar­ket capitalisation than the en­tire US steel in­dus­try that had a mil­lion em­ploy­ees.

There was a lot of pres­sure from cor­po­rate watch­ers and mar­ket an­a­lysts on Tata Sons to con­sider list­ing TCS in those years. They even pro­vided the kind of val­u­a­tion TCS en­joyed. For ex­am­ple, Credit Suisse First Bos­ton had val­ued TCS at $20.7 bil­lion (₹97,000 crore). In the mid-1990s, the capitalisation of the five or six big­gest Tata com­pa­nies was about ₹20,000 crore. If Tata Sons con­sid­ered this op­tion and mon­e­tised a rel­a­tively small per­cent­age of the TCS stock af­ter it went pub­lic, it could take ev­ery sin­gle listed Tata stock in In­dia, in­clud­ing Tata Steel, Tata Mo­tors, Tata Chem­i­cals and Tata Power. Most Tata com­pa­nies could also be­come debt­free. This was also one of the pri­or­ity ar­eas iden­ti­fied by Ratan Tata. Then why didn’t the Tatas ex­ploit the op­por­tu­nity?

Mukund Ra­jan, then chief sus­tain­abil­ity and group ethics of­fi­cer, re­called that NA Soon­awala, then Vice-Chair­man at Tata Sons, had shared some of these ob­ser­va­tions with chair­man Ratan Tata and the ben­e­fits it would gen­er­ate for Tata Sons. How­ever, Ratan Tata turned it down: “We all recog­nise that there is an IT bub­ble that is be­ing built up. We can cer­tainly list TCS and get a ridicu­lous val­u­a­tion; but three-four years down the line, af­ter the bub­ble has burst and share­hold­ers are still hold­ing our stock, what they re­ceive as div­i­dends is in no way go­ing to com­pen­sate them for the in­vest­ment they would have made. They will re­mem­ber that and hold it against us. As pro­mot­ers, we can­not ex­ploit the mar­ket be­cause of a short-term sit­u­a­tion.”

His stance was a clas­sic ex­am­ple of what the fa­mous US foot­baller Cur­tis Martin once said: ‘Never let a short-term de­sire get in the way of a long-term goal.’ The list­ing could have cre­ated bil­lions for the group but would have even­tu­ally erased the hard-earned money of mil­lions of share­hold­ers who had faith in the Tatas.

The de­ci­sion un­der­scored the Tatas’ pri­or­ity to serve share­holder in­ter­ests over group in­ter­ests. In 2004, when the de­ci­sion for list­ing TCS was made, Tata Sons be­ing the pro­mot­ers of the is­sue agreed to re­tain 82.69 per cent stake in the newly formed Tata Con­sul­tancy Ser­vices Ltd. In June-July 2004, the ₹5000-crore TCS IPO emerged as the big­gest IPO in In­dia and the sec­ond­largest tech IPO in Asia. At the time of open­ing for trad­ing, it cre­ated a record by com­mand­ing a premium of 41 per cent and was over­sub­scribed 7.7 times.

With per­mis­sion from Pen­guin Ran­dom House In­dia

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