TCS has inked an agreement with Mitsubishi Corporation to form a new IT services company of significant scale in the Japanese market with annual turnover of over USD 600 million.

"The deal, if closed by June 2014 will add about USD 375 million incremental revenues in FY15 (three quarter revenues from ITF)," Motilal Oswal Securities Analyst Ashish Chopra said.

The deal is a cash and equity deal and cash payout by TCS is USD 50 million, he added.

"Japan is the second largest market for IT services and Indian players have struggled to gain a foothold in the region. In that regard, TCS' move opens up the region favorably for the company- an additional source of revenue over the long term," he said.

The new entity will see the merger of TCS Japan, IT Frontier Corporation (ITF) Mitsubishi's 100 per cent IT subsidiary and Nippon TCS Solution Center (NTSC).

TCS will hold 51 per cent stake in the unit while Mitsubishi will hold the remaining 49 per cent.

For 2013-14, TCS' net profit was up 37.69 per cent to Rs 19,163.8 crore (about USD 3.16 billion) and revenue grew 29.87 per cent to Rs 81,809 crore (over USD 13.5 billion).

TCS has been present in Japan since 1987 and continued to invest in Japan by setting up a near-shore facility in Yokohama in 2002 to build local capabilities and a Japan off-shore Delivery Center in Kolkata to provide delivery excellence to its Japanese customers.

TCS Japan had formed a joint venture- Nippon TCS Solution Center (NTSC) in 2012 with Mitsubishi to offer specialized IT services to Japanese corporations.

The Japanese IT services market is estimated to be between USD 110 billion to USD 125 billion in size but accounts for less than 2 per cent of India's software exports because of language and cultural barriers.


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