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CMC eyes margin growth, expansion, merger

Privatised Indian software and computer maintenance firm CMC Ltd expects profit margins to double in the next financial year on the back of new projects, a top official said on Wednesday.

The company is also hiring aggressively to service the growing list of contracts and is open to a merger with the consultancy wing of its parent, the Tata group, chief operating officer R Ramanan told Reuters in an interview.

CMC, run by Tata Consultancy Services after being privatised in October, expects margins to rise to 20 per cent in 2002-03 (April-March), Ramanan said.

Sales would rise 25-30 per cent as CMC leveraged the global reach of Tata Consultancy Services -- India's top software exporter which had revenues of over $689 million last year.

More than 60 per cent of TCS's sales come from North America against just nine per cent from India.

OUTSOURCING OPPORTUNITIES GROW

"We see strong opportunities from outsourcing -- from companies in the United States and from multinationals and domestic companies here," Ramanan said.

"We are also focusing on insurance companies establishing themselves in India and on state-run organisations," he added.

CMC has traditionally received large contracts from the Indian state sector, and has computerised reservations for the Indian Railways, one of the world's largest railway networks.

CMC started hiring aggressively this month, and would add 500 computer professionals and management graduates in a year's time, 250 of them by May, Ramanan said.

CMC had a staff strength of 3,100 when Tata, India's second-largest conglomerate by revenues, bought a controlling 51 per cent stake from the government in October.

Its shares have risen 77.4 per cent since October 5, when the Tata acquisition was announced. Over the same period the Bombay benchmark has risen 24 per cent.

Since January, CMC had won five contracts which would boost its performance in the next financial year, Ramanan said.

A week ago, it was chosen by Charleston County in South Carolina to outsource the County administration's entire information technology operations, in partnership with TCS.

The contract is worth $18 million over five years, with revenues to be shared with TCS, Ramanan said.

CMC has won contracts totalling Rs 460 million ($9.42 million) over the next year to set up wide area and local area networks at state-run Hindustan Aeronautics Ltd, Central Bank of India and Bank of India.

It has also been chosen by the Indian government to design software to manage population census documents in a contract worth Rs 230 million, Ramanan said.

BRIGHT PROSPECTS FOR SECTOR

Ramanan, who worked with TCS for 21 years before being transferred by the group to CMC, was bullish about the prospects for the Indian software sector.

"The information technology industry is coming out of a slump, and things are better than they were some months ago. I think Indian companies would be justified in aiming for export growth of 25-30 per cent in 2002-03," he said.

Exports are likely to play an increasingly important role in CMC's performance.

Currently around 20 per cent of CMC revenues come from overseas markets. Ramanan said this would increase to 30 per cent by March 2003 and 40 per cent by 2004.

In the October-December quarter, CMC's net profit rose more than five-fold year-on-year to Rs 70.02 million on sales of Rs 1.22 billion.

TCS MERGER POSSIBLE

Ramanan said there were no plans to take CMC private by buying out public shareholders. But a merger with TCS was possible, perhaps after TCS went public.

"We're already working together as one organisation," he said.

The operations of Baton Rouge International, a US company fully owned by CMC would be merged with TCS Americas, the US subsidiary of TCS in the next one or two years, he added.

TCS, a division of Tata Sons, the main holding company of the $8.5 billion salt-to-software Tata conglomerate, is widely expected to launch what may be India's largest initial public offering in the near future.

Ramanan declined to comment on the timing of the IPO.

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