Seoul: Infosys Technologies Ltd is eyeing acquisitions in Japan as India’s second-largest outsourcer looks for growth outside its main markets in the United States and Europe.
The company could use as much as 10% of its revenue for acquisitions or about $300 million to $500 million, CEO Kris Gopalakrishnan said in a joint interview with Reuters Insider.
“We have been present in Japan for now more than 10 years and we have not made much progress,” Gopalakrishnan said on the sidelines of the G20 CEO Summit in Seoul.
“It makes sense for us to look for an acquisition in Japan,” he said. Gopalakrishnan did not give details, but said Japan accounts for 2% of the Bangalore-based company’s revenue.
So far, India’s $60 billion export-focused sector has shied from any blockbuster deals and companies have instead acquired smaller IT divisions globally to tap opportunities in areas such as utilities and healthcare.
Indian exporters employ thousands of staff in low-cost local centers with manicured lawns, pizza and Subway outlets, fitness centres and golf carts to move around the sprawling campuses.
Oracle, Dell have snapped up global targets to grow beyond their core areas, while Xerox bought Affiliated Computer Services to jump into the outsourcing sector.
Infosys earns about 85% of its revenue from the United States and Europe and is keen to increase sales from emerging economies.
“Overtime we want to shift our revenues to currently 85 from the US and Europe to 40 from US, 40 from Europe to 20 from rest of the world. And that is the shift we are making in the next few years,” Gopalakrishnan said.
China has also proven a surprisingly tough nut to crack for Indian IT firms, which once had big hopes for the market.
Gopalakrishnan said Infosys is also exploring the South Korean market for expansion, but is not looking for acquisitions in the country.
Price Increases Unlikely
Infosys is seeing stability in pricing, but a price increase for its services is unlikely in the near term as its clients focus on costs.
“We have reached some sort of an equilibrium in some sense and there is stability in prices.”
Gopalakrishnan said the appreciating rupee was the biggest short-term challenge as a one percent gain or loss in the local currency has a 40 basis-point impact on its margins.
Infosys’ operating margin is close to 30% and has remained at that level despite currency fluctuations, he said.
“It’s not just about the rupee alone. All of other currencies are fluctuating quite violently within a quarter and that is a challenge.”
Last month, Infosys warned currency volatility could crimp growth for the Indian IT sector, after it topped market estimates for July-September profit and raised its full-year revenue forecast.
Infosys shares are up about 17% so far this year, outperforming a 6% rise in smaller rival Wipro, but trailed industry leader Tata Consultancy Services whose shares have surged 46%.