Cyient eyeing four firms as potential buys
The deal is likely to be closed within the second quarter of the current fiscal, and will be financed by an equal mix of debt and cash
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Hyderabad: Cyient Ltd, the rebranded entity of engineering services provider, Infotech Enterprises Ltd, is evaluating four companies for potential acquisition, as it plans to grow by adding newer technology capabilities.
The deal is likely to be closed within the second quarter of the current fiscal, and will be financed by an equal mix of debt and cash, Krishna Bodanapu, chief executive officer and managing director of Cyient said in an interview on 29 May.
The four firms, based in India, the US, the UK and Germany, operate in the aerospace, medical electronics and electronics verticals, Bodanapu said, without disclosing names. “If all four happen, we will do (buy) all four. We have the resources. We have the bandwidth. But I would be very, very surprised if all four happen,” he added.
Cyient, according to Bodanapu, is willing to spend up to $200 million to buy these companies with “$10-20 million being an ‘attractive’ proposition and $20-50 million a ‘sweet spot’ (while) a deal in the $50-200 million range would be considered on the basis of merits”, he said.
He ruled out any deal beyond that value.
The Hyderabad-based firm had cash reserves of Rs.726 crore at the end of last fiscal.
Acquisitions will help a mid-cap IT company like Cyient diversify its risks and add new clients, said a Mumbai-based analyst, who did not want to be quoted, citing company policy. “It (Cyient) is sitting on a large amount of cash it will be the right time for the company (to make an acquisition) because it will diversify the risks,” this person said.
Cyient’s acquisition of US-based Softential Inc. in March helped it to broaden its service portfolio for existing clients and enter newer markets. The Softential acquisition is expected to add $17-20 million to revenues in the current fiscal year.
Cyient services clients in aerospace, utilities, railway transportation, telecom, energy and natural resources, semiconductors and geographic information systems. Bodanapu identified data analytics and product realization as two new growth areas for the company.
The company is looking to graduate from being an engineering services provider to developing software products through product realization (developing, manufacturing and delivering the finished product) by testing, certification and prototyping of products.
Cyient has embarked on a rebranding exercise from its earlier avatar as Infotech Enterprises, even as the firm went for an organizational overhaul.
Bodanapu was elevated as CEO and MD of the company while his father and the company’s founder-chairman B.V.R. Mohan Reddy was made the executive chairman.
Mohan Reddy was once seen as a pioneering entrepreneur who could lead Indian outsourcing firms in the engineering services space. But the company hasn’t taken off as expected in terms of growth. This was because engineering services requires more domain knowledge than traditional IT services, Mohan Reddy said. Besides, engineering companies are reluctant to outsource their core operations because they perceived it as lending their “crown jewels”.
The future may turn out to be brighter.
Engineering services outsourcing is expected to reach $38-50 billion by fiscal year 2019-20 compared with the current $2 billion, Edelweiss Securities Ltd said in a research note, quoting a Nasscom-Booz Allen Hamilton study.
“As one of the leading offshore engineering services firms for the manufacturing industry, Cyient is poised to grab the increasing opportunities... The company’s skills in the areas of mapping and designing across diverse segments and in a variety of end-user IT environments give it an edge,” Edelweiss analysts Sandip Agarwal, Omkar Hadkar and Deepansu Jain said in a note dated 8 May.
On Wednesday, Cyient’s share price was up 1.14% at Rs.305.95, while the benchmark Sensex fell 0.21% to 24805.83 points and the BSE IT Index was down 1.27% to close at 8346.87 points.
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