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Business – TCS;Eyeing strategic acquisitions

KUALA LUMPUR — Tata Consultancy Services Ltd., India’s largest software exporter by revenue, will continue to look at strategic acquisitions to broaden its product lineup, Chief Executive and Managing Director S. Ramadorai said Tuesday.

“There is a lot of room to grow organically, as we have done, but we will look at selective acquisitions to capture niche markets,” Mr. Ramadorai told Dow Jones Newswires on the sidelines of Forbes Global CEO Conference in Kuala Lumpur.

Mr. Ramadorai declined to discuss specific deals being studied but said planned acquisitions will be “strategic” in nature, similar to the firm’s $505 million takeover of Citigroup’s India business processing outsourcing, or BPO, outfit in October last year.

That investment helped the Mumbai-based firm acquire new capabilities in the banking domain and bring newbusiness to drive growth going forward, he said. New acquisitions “will not be done just to add to revenue,” he added.

Mr. Ramadorai said the banking, financial services and insurance, or BFSI, sector, which traditionally accounts for more than 40% of the firm’s business, will continue to be a growth driver for TCS.

The more complex regulatory requirements in the banking and financial services sector in the aftermath of last year’s financial meltdown will likely raise demand for BPO services, he said.

The healthcare and pharmaceutical sector, which currently accounts for some 5% of TCS’s business, is also another fast growth area, while the energy and utilities sector is also targeted as a new growth area, he added.

Mr. Ramadorai said the “worst is over” for the BPO sector, but reiterated that winning customers was taking longer than previously as many firms are reining in their budgets. “The deal pipeline is close to what we had at this time in 2008, but deals are not closing as fast as we’d like,” he said.

Mr. Ramadorai declined to disclose the size of TCS’s deals pipeline but said it now takes between six and eighteen months to close a deal. “It used to be a lot quicker,” he said.

TCS said in July that it has seen stability emerge in segments like BFSI, but the manufacturing and telecom sectors continue to remain uncertain. Pricing pressure from customers, prevalent at the start of the downturn, has also eased, he said.

Most of India’s other IT firms have been affected by the global economic slowdown as clients – primarily in the U.S. and Europe – cut costs, including spending on technology.

Still, Mr. Ramadorai said TCS’s revenue rose 23% in the fiscal year ended March 31, 2009. In the fiscal first quarter ended June 30, TCS posted a 22% on-year rise in net profit to 15.20 billion rupees ($318.6 million) from 12.44 billion rupees a year earlier as cost control measures helped boost its operating margin, Mr. Ramadorai said.

He declined to comment on the company’s performance in the second quarter to Sept. 30.

Mr. Ramadorai, who retires next week as the firm’s chief executive and managing director, will be appointed its non-executive vice chairman from Oct. 6.

N. Chandrasekaran, the current chief operating officer, or COO, will take over as chief executive and managing director on Oct. 6.

Mr. Ramadorai said that following a restructuring of the group’s business into 23 independent business units, there are no plans to appoint a COO to replace Chandrasekaran.


September 29, 2009 - Posted by | Uncategorized |

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