IP & royalties key prongs of TCS business revamp

MUMBAI: Ask S Ramadorai what’s the biggest threat to his business, and pat comes the reply: “The rupee.”  So much so, the managing director and CEO of TCS, India’s largest information technology company, said these are very, very challenging days.

“We have to restructure our business. We have to stress our intellectual property rights and try to monetise it in every manner,” said Ramadorai.

TCS also plans to heavily lean on product royalties. Ramadorai was speaking to DNA Money on the sidelines of a programme that saw his company induct 500 BSc graduates to its mammoth 95,000-strong roster.

The youngsters’ skills were honed for seven months to make them an equal to fresh IT engineers.

Many CEOs in the past have pointed to the lack of employable talent available in the country as the biggest threat before them, which could make or break their business models. But Ramadorai believes that he can tackle that problem through innovative programmes such as Ignite, which is basically a finishing school that prepares the young graduates for an IT career.

Has it faltered by not focussing more on acquisitions even as group companies such as Tata Steel, Tata Tea and Tata Motors have rapidly scaled up through the inorganic route?

Peers such as Wipro have already made a stream of acquisitions, paying top dollar. Closest rival Infosys Technologies is getting into M&A gear, too. Ramadorai is unfazed.

“We believe integrating a smaller acquisition is easier than integrating bigger ones. The larger companies, by virtue of their high cost base, are less lucrative and it is not easy to immediately outsource their work to low-cost bases. We will look at niches instead,” he said.

Ramadorai said integrating larger acquisitions also bring in their wake cultural integration problems.

Is money a factor, as the Tata group is expected to monetise a portion of its holding in TCS to fund ambitious acquisitions elsewhere?

“It hardly matters. We have Rs 3,000 crore in cash and we’ll be adding considerably to this amount annually. We can leverage this to raise more debt and use for future projects,” Ramadorai said.

TCS revenues were Rs 5,203 crore and net profit Rs 1,203 crore for the quarter ended June 30, 2007.

He said about eight new software development centres to be set up by TCS will be owned by Tata Realty & Infrastructure.

“We will be the anchor tenant and Tata Realty will lease the space to us. Tata Realty is free to get more tenants for the properties. For us, this arrangement will free up about Rs 1,000 crore, which, otherwise, would have been incurred on developing the brick & mortar facilities,” Ramadorai said.