Add TCS Ltd for the Target Rs 2,600 by Emkay Global Financial Services Ltd
TCS has announced a strategic partnership with Porsche AG for enabling AI services across Porsche’s mobility value chain. As part of the deal, TCS i) will set up AI mobility CoE focusing on industrializing use cases across engineering, manufacturing, operations, customer experience, enterprise transformation agenda, and deliver next-gen automotive tech services and software-defined mobility platforms, ii) will acquire MHP Management- und IT-Beratung GmbH (MHP), Porsche AG’s captive IT services arm, for €320mn (EV/S: ~0.4x), to strengthen its automotive consulting and AI transformation capabilities, particularly in Germany and Europe, iii) has signed a 5Y strategic deal totaling €1.25bn with Porsche AG, to drive long-term AI-led transformation and business outcomes. MHP serves ~300 clients across the automotive and industrial verticals, and derives ~40% of its revenue from Porsche. It will strengthen TCS's automotive and industrial consulting capabilities, scaling its AI transformation offerings across European auto and industrial customers. Considering the onsite-centric business with MHP’s revenue challenges, intangible amortization impact, talent retention, and transaction and integration costs, the transaction is likely to be ~50bps dilutive at the EBITM level and slightly dilutive at EPS level in the first year. Pending deal closure, we have not factored the transaction (likely to add ~2.8% to TCS’s revenue) in our earnings estimate. We maintain ADD and TP of Rs2,600, at 16x Jun-28E EPS.
Deal contours
TCS, via wholly-owned TCS Netherlands BV, has executed a SPA with Porsche AG for 100% acquisition of MHP, along with step-down subsidiaries in Romania, UK, US, India, and Mexico. The transaction entails an enterprise value of the business at €320mn, excluding customary post-closing adjustments for net debt and working capital, with consideration to be paid in cash. The acquisition is expected to close within 3-4M subject to regulatory approvals, and anchors a broader AI transformation partnership with Porsche, signing a 5Y deal with MHP amounting to €1.25bn.
Acquisition strengthens auto capabilities
The AI Mobility CoE set up, the 5Y deal with Porsche, and the MHP acquisition will all strengthen TCS’s presence in European automotive and industrial consulting. MHP’s 30Y track record, domain expertise, and client relationships complement TCS’s global scale and AI capabilities, helping it scale auto, expand existing accounts, and scale AI-led consulting across Europe. Porsche and MHP will also continue their long-standing collaboration, with MHP still a key digitalization/transformation partner, particularly in AI.
MHP - A brief profile
MHP, the fully-owned subsidiary of Posche AG, is a leading provider of management and IT transformation services. It delivers business consulting, digital transformation, AI, SAP transformation, manufacturing digitalization, connected mobility, and software-defined mobility solutions to automotive and industrial clients, employing ~4,500 professionals. TCS serves a broad range of industries, including automotive, manufacturing, aerospace, defense, energy, and the public sector. It reported revenue of €828mn/€830mn/€742mn for CY23/CY24/CY25, respectively.
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