TCS is reminding investors how much it loves bargains ⁠— CFO says COVID-19 may be the best time for M&A

• TCS CFO V Ramakrishnan said that TCS is open new picking up new businesses as the economic impact of the coronavirus pandemic continues to bear down on the economy.
• Ramakrishnan pointed out that TCS' biggest acquisition was during the global financial crisis in 2008 when it picked up Citigroup Global Services (CGS) for $505 million.
• The company currently has ₹29,281 crore in cash.

Tata Consultancy Services (TCS) is open to new mergers and acquisitions even though the company is not immune to the effects of the global coronavirus pandemic. “The economic downturn is not due to any structural problem in any industry, but due to an externality that has hit the pause button on all economic activity,” said TCS CEO Rajesh Gopinathan in the company’s annual report to investors.

“We are always open to the idea of picking up the right asset at the right price. Economic downturns are probably the best time to do it, when there are fewer buyers,” TCS CFO V Ramakrishnan, pointing out that the company’s biggest acquisition was at the peak of the global financial crisis.

In December 2008, it picked up Citigroup Global Services (CGSL) in a $505 million all-cash deal with the promise that the business would hit a record $2.4 billion in committed revenue over the next nine-and-a-half years. Even the environment was uncertain — like it is now — TCS claimed that CGSL’s over 12,000 professionals with banking skills would be its biggest asset.

TCS has ₹29,281 crore in cash
Ramakrishnan also affirmed that TCS has enough cash on its balance sheets if things do get bad. However, the company’s capital allocation policy continues to be one of returning most of its free cash flow to shareholders.

In 2020, TCS revenue grew by 7.2% — less than half of the 19% growth it saw in the previous year. However, the company attributes most of the deceleration to fewer currency benefits as well as to the volatility in the demand for financial services and its retail vertical. [hyperlink]

Sectors that TCS likes during the COVID-19 crisis
“As it so happens, demand for pharmacovigilance services was already growing robustly and will probably accelerate next year due to the increased activity around drug development,” said Krishnan Ramanujam, the global head of business and technology services at TCS.

“In many sectors, digital channels have gone from being secondary ‘nice-to-have’ option to become the primary channels, and in some cases, the only channels,” added TCS Chairman, N Chandrashekhar.

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