TCS - Alti acquisition to expand continental Europe footprint - JM Financial

All cash acquisition for EUR75mn: TCS has acquired France-based IT services firm Alti which reported CY12 revenues of EUR127mn. This is an all-cash acquisition for total consideration of EUR75mn, implying trailing EV/sales of 0.6x and EV/EBIT of 8-9x. The acquisition will help TCS expand its presence in France and continental Europe (c.9% current revenue share).

France based IT services player: Alti, established in 1995, has expertise in Enterprise solutions, Assurance and CRM (Customer relationship management). Alti generates c.80% of revenues from France and rest from Belgium and Switzerland. The acquisition will add 1,200 employees across France, Belgium and Switzerland for TCS. Alti has c.50 clients with 10+ clients in the CAC 40 index. Clients are spread across multiple verticals - banking, financial services, luxury, manufacturing, utilities and airlines. Some notable clients are - BNP Paribas, Credit Agricole, HSBC, Société Générale, Allianz, LVMH, Mercedes Benz, Accor, Air France, Unesco.

Strategic intent of the acquisition: TCS currently generates c.9% of revenues from Continental Europe with highest share from Germany followed by France. The acquisition will increase TCS' foot-print in France and particularly augment the local delivery capability. Cross selling TCS' full services capability to 50+ clients of Alti will be the key strategic intent.

Impact on financials: Alti will be integrated 2QFY14 onwards. It will contribute c.1% to FY14 revenues and dilute EBIT margins by c.20bps. The acquisition will largely be EPS neutral.

Retain BUY; TCS remains a steady play in the sector: TCS remains one of our top picks in the sector, with leading revenue growth and stable margins. Our TP of `1,580 is based on 17x 1-year forward EPS.

Source : Equity Bulls

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