Tata CEO sees opportunity as US banks cut back

NEW YORK: The economic crisis may present a growth opportunity for India's top outsourcing firm, Tata Consultancy Services Ltd (TCS), as US
financial services companies look to cut costs, but that opportunity is likely some months away, the company's CEO said on Wednesday.

It does not make sense for Wall Street firms to run their own "captive" back-office information technology operations that perform functions such as order processing, TCS Chief Executive Subramanian Ramadorai told Reuters.

"Captives will disappear, in my opinion," he said in an interview. "It's one of the big ticket items that will give them the savings they want."

TCS, part of India's Tata Group, provides services such as consulting, system integration and back-office outsourcing. Last month, it bought Citigroup Inc's back-office unit in India for $505 million, a deal that is expected to close by early January.

Ramadorai did not hold discussions with Citi while in New York this week, but added: "We continue to meet them."

As clients consolidate, Ramadorai said he saw further opportunity for Tata.

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Citi to invite bids for BPO arm stake

Citigroup has opened talks with prospective bidders, including IBM Corp. for selling a strategic stake in its Mumbai-based captive business process outsourcing (BPO) arm Citigroup Global Services Ltd, earlier e-Serve International.

While additional details of the stake sale plans weren’t available, based on current annual revenue estimates ranging from $300 million to $400 million (Rs1,230 crore to Rs1,640 crore), industry sources estimate the unit could be valued at over $1 billion.

Citigroup India chief executive officer Sanjay Nayar declined to comment on the development, saying the bank’s policy is not to respond to market speculation, but people familiar with the development and who didn't want their names used said, “Citi has started feeling the market for a strategic stake sale. The process has started and it may take a while before concluding the deal.”

They also said the conglomerate will not go for a complete sell-off. An IBM spokesperson in India said: “We do not comment on speculation and rumours.”

Industry watchers are keeping a close eye on the structure of the deal. One person close to the bank, who did not want to be named, said Citi is exploring the possibility of structuring the deal along the lines of the 2004 IBM-Bharti Televentures outsourcing deal.

In March 2004, IBM took over Bharti’s information technology operations in return for assured revenues of up to $750 million over a 10-year period.

“There could be a similar arrangement whereby IBM would run Citi’s BPO operations for a fee. In addtion to that, it could pick up a strategic stake (in Citigroup Global Services),” this person said.
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