Shares in Tata Consultancy Services Ltd. are expected to rise by a quarter when they start trading on Wednesday after India's largest IPO, as investors bet on strong growth for the leader of the nation's software services industry.
Expectations of an upbeat debut follow heavy demand for the initial public offering, which raised 54.2 billion rupees ($1.17 billion) and was subscribed 7.7 times.
In Asia's second-largest technology IPO this year, TCS sold 13.33 percent of its equity this month, pricing shares in the top half of a previously set band at 850 rupees each.
Analysts expect a scramble for the shares on day one. The stock is already available at a 200-rupee, 19 percent premium in the grey market.
"The unsatisfied demand itself will push up the price on listing," said Apurva Shah, a technology analyst with local brokerage Prabhudas Lilladher.
The TCS listing will add some $10 billion to India's market capitalisation, which stands at $239 billion. At the offer price, TCS would be India's fifth-biggest company by market value, just behind its closest rival in the $12.5 billion software services industry, Infosys Technologies Ltd.
"The euphoria surrounding the issue will lead to some more demand. But what is important is to see at what level the stock eventually settles," Shah said.
The company, a unit of India's second-largest private conglomerate, Tata, had revenue of $1.3 billion in the fiscal year ended March.
General Electric Co. accounts for some 17 percent of its sales, and TCS is the largest offshore IT services supplier to the company.
DISCOUNT TO INFOSYS
Analysts expect TCS to report earnings per share (EPS) of about 42 rupees for the year to March 2005, up 24 percent from the past year, giving it a price to forward earnings ratio of 20 times at the IPO price.
That is a discount to Infosys, which trades at about 25 times forward earnings. The predicted first-day rise for TCS would take it to a similar P/E ratio.
TCS's debut on Wednesday comes close on the heels of a similar-sized technology issue -- the $1.67 billion IPO from Google Inc., the world's largest Internet search engine.
Google shares jumped 18 percent on their long-awaited market debut, after a scaled down IPO.
Despite a flood of IPOs in India this year, returns have been modest and some of the most high-profile new shares are trading at a discount to their offer prices.
Investors expect TCS to end that trend.
"Clearly, the company has left something on the table, so we expect a strong opening," said Sashi Krishnan, chief investment officer of Cholamandalam Asset Management.
His fund has recently increased its weighting of technology stocks to insulate the portfolio from oil and inflation shocks.
"TCS is not a trading call for us, but a long-term investment," Krishnan said.
Analysts said the stock could settle between 1,000 and 1,110 rupees in the short- to medium-term.
TCS's debut will be helped by an improved outlook for Indian technology stocks, as an easing of pricing pressure and a stable currency is helping restore confidence in the sector.
The IT index of the Bombay exchange has shed 4.4 percent in 2004, compared with a 14.9 percent slide for the main index of the exchange.
The TCS offer marks Asia's second-largest tech IPO this year, after Chinese chipmaker Semiconductor Manufacturing International Corp. raised $1.8 billion in March.
Set up in 1968, Bombay-based TCS is led by Chief Executive S. Ramadorai, a 32-year company veteran. The diversified Tata conglomerate's interest ranges from salt to cars and telecoms.
With some 30,000 staff, TCS has 149 offices in 32 countries and boasts 491 clients, including six of the 10 largest and 37 of the 100 largest U.S. firms in the Fortune 500.