Bangalore: Mid-sized Indian outsourcer MphasiS is looking at opportunities to buy companies with annual revenues of $50 million to $100 million to strengthen its presence in financial, telecom and healthcare services, its chief executive said on Thursday.
Ganesh Ayyar said MphasiS, a unit of Hewlett-Packard Co, would use its cash reserve of $320 million to make the acquisitions but declined to disclose likely targets or regions.
The Bangalore-based company, which gets two-thirds of its revenue from the United States, had last year bought AIG’s Indian IT services unit. In April, it picked up privately held Fortify Infrastructure Services for $15.5 million.
“We have been playing in the sub-$50 million so far,” Ayyar told Reuters in an interview, referring to the annual revenue of companies it bought. “Now we are looking for anywhere between $50-$100 million.”
MphasiS shares rose as much as 4.5% to Rs636.65 in a choppy Mumbai market. They are, however, down over 13% in the year to date, while the sector index has risen 6% and the main index is up 4%.
Ayyar said he expected pricing to remain stable in the three months ending October and does not see a significant rise in spending by clients due to a sluggish US economy.
“Even when there is confidence, the confidence is very fragile,” he said.
A spate of weak economic numbers from the United States, the largest market for Indian outsourcers, has heightened fears the US economy was at risk of another downturn.
Asked about technology spending by clients, Ayyar said: “My view is that it won’t go up significantly, especially with the data from the US”.
In July, research firm Gartner had trimmed its forecast for global technology spending in 2010 to $3.35 trillion, up 3.9% over last year, citing the debt crisis in Europe and a weak euro.
Europe contributes about a fifth of MphasiS’s annual revenue.
MphasiS will build a facility in eastern Europe by January to cater to European clients, Ayyar said, but declined to give investment details. It had set up a facility in Sri Lanka this year to expand in emerging markets.
MphasiS, in which Hewlett-Packard owns 60.6%, reported late on Wednesday an 18% rise in May-July net profit to Rs271 crore ($58 million), helped by increased outsourcing contracts.
A demand revival in the past few months has pushed up attrition among IT workers, forcing outsourcers including larger rivals Tata Consultancy, Infosys and Wipro to raise wages, putting pressure on profit margins.