TCS shares trade lower as IT firm seeks to acquire 100% stake in Porsche-arm MHP for €320 million; key things to know

Tata Consultancy Services (TCS) shares were trading around 1% lower during the morning market hours on Tuesday, August 25, as investors analyse the impact of the IT services major looking to acquire a 100% stake in Porsche AG’s subsidiary.

NSE data showed that after opening higher on Tuesday’s market, TCS shares were trading nearly 1% lower at ₹2,262.20 apiece, in comparison to ₹2,284.10 apiece at the previous equity market close.

In an exchange filing on Monday, August 24, TCS’s board of directors approved the acquisition of a full stake in MHP Management—und IT—Beratung GmbH, a subsidiary of Porsche AG, for an enterprise value of €320 million.

As the acquisition aims to anchor a long-term artificial intelligence (AI) transformation deal, Porsche has signed a five-year strategic deal with MHP and TCS amounting to €1.25 billion.

However, the proposed partnership and acquisition remain subject to regulatory approvals. The transaction requires approval from the European Commission under the EU Merger Regulation and the EU Foreign Subsidies Regulation.

Key benefits of the acquisition

The acquisition move is expected to position TCS as a strategic consulting and technology partner for Porsche for the broader European automotive and industrial customers, according to the exchange filing.

TCS and Porsche aim to collaborate to industrialise AI across Porsche’s engineering, manufacturing, operations, customer experience and enterprise transformation agenda and deliver next-generation automotive technology services and software-defined mobility platforms for sustained value creation.

The acquisition deal is expected to be completed within 3 to 4 months. TCS will establish a dedicated AI Mobility Centre of Excellence for Porsche to drive innovation across manufacturing, engineering, operations and customer experience.

“As AI, software, and data redefine the automotive industry, this partnership brings together TCS’ capabilities in AI, engineering, technology and business transformation with MHP’s strong automotive consulting expertise,” said K. Krithivasan, CEO and Managing Director, Tata Consultancy Services.

It will also focus on creating a platform for long-term value creation by scaling AI transformation and business outcomes across Porsche’s organisation and mobility ecosystem.

The acquisition is also expected to strengthen TCS’ presence in the German market and among European automotive and industrial customers.

Deutsche Bank AG acted as financial advisor and Noerr as legal counsel to TCS.

“Porsche is taking another important step in its strategy to focus resolutely on its core business with the transfer of MHP to Tata Consultancy Services. At the same time, we are gaining a strategic partner in TCS,” said Dr Michael Leiters, CEO, Porsche AG.

MHP is a leader in automotive and industrial consulting. MHP provides business consulting, digital transformation, AI, SAP transformation, manufacturing digitalisation, connected mobility and software-defined mobility to automotive and industrial clients. It was a fully owned subsidiary of Porsche AG, incorporated on May 13, 1996.

On Monday, TCS shares settled at ₹2,284.10 apiece on the National Stock Exchange, falling 0.78%.

What do analysts predict?

Analysts from Citibank said that there have been a few such acquisitions in the sector, and while they may support near-term growth, the risk of the existing book declining YoY increases with such transactions.

“Assuming €600–700mn run-rate for FY28 and 7–9% EBIT margins (rough assumptions), it would translate to 5–8x EV/EBIT; while it may appear low, note risk of a revenue decline & fact that Cap and EPAM (European IT companies with positive growth expectations) trade at 5.5x/8.2x CY27 EV/EBIT,” said the analysts.

In line with expectations, HSBC analysts said that the integration challenges remain and are often higher than anticipated in a period.

“We see the acquisition to be complementary to TCS. We think the financial impact of the acquisition would be limited,” said Morgan Stanley analysts after the acquisition update.