Infosys to focus on small buys

Infosys to focus on small buys
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First Published: Wed, Nov 25 2009. 03 39 PM IST
Updated: Wed, Nov 25 2009. 03 39 PM IST
Bangalore: Infosys Technologies Ltd, India’s No. 2 software exporter, is focused on small acquisitions to boost growth and does not expect pricing to improve in the near term, a top executive said.
However, pricing will likely remain stable until demand increases, chief financial officer V. Balakrishnan said at the Reuters India Investment Summit in Bangalore.
Shares of Infosys rose as much as 1 percent to an all-time high of Rs2,457.90 in intraday trade. The stock ended up 0.33% in the main Mumbai market that rose 0.40%.
Infosys, which is sitting on a cash pile of nearly $3 billion, may look at buying companies in the consulting, back office, healthcare and utilities segments, Balakrishnan said.
So far, India’s IT sector has shied from blockbuster deals and instead focused on acquiring smaller IT divisions to tap opportunities in areas such as utilities and healthcare.
“We look at small, niche acquisitions which will help us to penetrate certain geographies much faster, grow certain verticals much faster, grow certain services much faster,” Balakrishnan said.
Infosys, which is targeting companies with revenue of about $400 million to $500 million, may acquire firms in Germany and France to expand its presence in Europe, he said.
Anurag Purohit from Religare Capital Markets said: “They can’t change their basic acquisition philosophy in a year. But they might look at acquisitions more actively than they did earlier.”
Balakrishnan also said he is comfortable with margins in the near term, but they could be weighed down by a stronger rupee.
India’s nearly $60 billion outsourcing sector has taken a hit from the global economic downturn as its core financial clients slammed the brakes on technology spending and demanded sharp price cuts.
Nasdaq-listed Infosys, which competes with Wipro and Tata Consultancy Services, has seen pricing drop about 5% over the last six months.
Deal sizes shrink
Business has slowed in the last one year and deal sizes have become smaller, Balakrishnan said, as clients cut back on discretionary projects.
Infosys stunned markets in April when it forecast its first decline in annual revenue in dollar terms, marking a watershed for a sector that is a magnet for thousands of young job seekers in the country.
The biggest concern for Infosys is the pace of revenue growth, Kaufman Bros analyst Karl Keirstead said, adding that the company may be a couple of quarters away from seeing a real demand uptick.
Balakrishnan said the United States will remain its biggest market followed by Europe.
“But medium to long term, we want to have at least 40% of our revenues coming from the US, 40% from Europe and 20 percent from the rest of the world,” he said.
Balakrishnan expects India to be a key growth driver in emerging markets and sees the country, which accounts for about 1% of the company’s total revenue, contributing at least $1 billion in revenue in the medium to long term.
Hiring in fiscal 2010 will be on target, Balakrishnan said. The company, which employs more than 100,000 people, recently raised its hiring target to 20,000 people from its earlier forecast of 18,000.
Shares of Infosys have risen 117% year-to-date, underperforming Wipro and Tata Consultancy Services that have risen 177% and 192%, respectively.
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First Published: Wed, Nov 25 2009. 03 39 PM IST