Tata Infotech merges with TCS at 2:1 swap

First Indian IT company to cross Rs 10,000 crore sales.

The Tata group consolidated its information technology-enabled services business by merging Tata Infotech Ltd (TIL) with Tata Consultancy Services (TCS). The merger is proposed to be effective from April 1, 2005.

The shareholders of TIL will receive one equity share of TCS for every two shares held. The TCS shares' face value is Re 1 while TIL share has a face value of Rs 10. Post amalgamation, the paid-up share capital of TCS will increase from Rs 40.01 crore to Rs 48.92 crore.

Tata Sons, the holding company of the Tata group, holds 80.64 per cent stake in TCS and 74.18 per cent stake in TIL. Post-merger, Tata Sons' holding will go up marginally to 80.52 per cent in TCS. TCS Chief Executive S Ramadorai said the merger formula was based on the recommendation of independent valuers.

He said the merger would bring together two leading IT organisations and lead to efficiency in operations, particularly in the marketing of services. "TCS has been and will remain the strongest IT brand in the country," Ramadorai said.

He said the merger would provide TCS an expanded customer base and deeper penetration in key geographies. TIL has a significant presence in the systems integration areas, particularly in telecommunication and defence, which will supplement the capabilities of TCS.

Our Research Bureau adds: After the TIL merger, TCS will be the first IT company in India with sales of over Rs 10,000 crore. Wipro, with net sales of Rs 8,160 crore in 2004-05 will be second largest company and Infosys Technologies, with sales of Rs 7,130 crore, will rank third in the pecking order.

With a combined net profit of Rs 2,057 crore, TCS will continue to be the most profitable IT company in India. Infosys Technologies, which had earned net profit of Rs 1,892 crore last year, will rank second and Wipro with a net profit of Rs 1,629 crore ranked third.

In terms of market capitalisation, TCS ranks first with Rs 61,049 crore, followed by Infosys Technologies (Rs 59,588 crore) and Wipro (Rs 49,516 crore).

Post-merger, TCS' sales will swell to Rs 10,708 crore. During the year ended March 2005, TCS achieved consolidated sales of Rs 9,748 crore while its consolidated net profit was at Rs 1,977 crore. Tata Infotech achieved consolidated sales of Rs 960 crore and net profit of Rs 80 crore.