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Infosys needs French technology acquisitions to lift value [Times of Oman](Times of Oman Via Acquire Media NewsEdge) MUMBAI: Infosys, India's second-largest software-services exporter, is seeking European acquisitions as it trades at its lowest valuation since the financial crisis. That's turning French companies from Sword Group to GFI Informatique into potential targets. Infosys, whose $4 billion cash pile is the biggest among India's computer-services providers, said last month it's looking for a European deal after its annual sales forecast trailed analysts' estimates. With growth curbed by competition, the Bangalore-based company is trading at 15.9 times earnings, the lowest since the aftermath of Lehman Brothers Holdings Inc.'s collapse, according to weekly data compiled by Bloomberg. A European takeover would help Infosys add a local sales force and new lines of business as it loses the ability to command high prices for basic software development, Ambit Capital Pvt. said. With French information technology companies trading at a median price-to-sales multiple that's 72 per cent cheaper than their western European rivals, Sopra Group, GFI Informatique and Sword all offer Infosys the footprint it seeks in the region, according to Talence Gestion. "The need for an acquisition to compete more effectively at the front end seems quite key for Infosys," Ankur Rudra, a Mumbai-based analyst at Ambit Capital, said. "Unless they are ready to accept lower prices and hence possibly lower margins, they'll just have to do this. Otherwise, they'll get competed out of the market." Y2K success Founded in 1981 with $250 in capital and seven software engineers, Infosys signed its first customer in the US later that year and opened its first overseas office in Boston in 1987, according to its website. With its shares closing last week at 2,311 rupees ($43.15), the 150,000-employee company had a market value of $24.8 billion, data compiled by Bloomberg show. The shares rose 0.8 per cent to 2330 rupees each, as of 9.20am in Mumbai. Infosys' sales growth surged as it helped companies tackle the so-called Y2K bug that threatened to reset calendars on computer systems to the year 1900. Annual revenue through March 2001 more than doubled to $416 million, according to data compiled by Bloomberg. The company's early success made Infosys the "flag-bearer of the Indian IT industry globally," CLSA Asia-Pacific Markets analysts wrote in a note last month. The company is now losing ground as Mumbai-based Tata Consultancy Services Ltd. and Cognizant Technology Solutions Corp. of Teaneck, New Jersey, chase customers with "new found aggression," CLSA's Nimish Joshi wrote in the April 19 note. Armonk, New York-based International Business Machines Corp. is also hiring in India to compete for low cost offshore services. Sales growth Infosys's sales will rise as much as 16 per cent to 391.4 billion rupees in the year ending March 2013, the company projected last month. That would be the slowest pace in two decades, excluding fiscal 2010 when revenue growth slowed to 5 per cent after the September 2008 bankruptcy of New York-based Lehman spurred the worst financial crisis since the Great Depression, data compiled by Bloomberg show. In contrast, Tata Consultancy said on April 24 that it has seen "absolutely no problem" for growth this year. Down 20 per cent in the past year, Infosys is trading at 15.9 times net income for the year ended in March. That's the lowest since May 2009, when global equities were recovering from the bear market spurred by Lehman's collapse, weekly data compiled by Bloomberg show. Describing outsourcing work as "commoditised," the company's chief financial officer V. Balakrisnan said in February that Infosys is looking for acquisitions that will expand its consulting offerings and intellectual property. That would enable them to vie for higher value contracts with companies from Dublin-incorporated Accenture Plc to Paris-based Cap Gemini SA, Ambit's Rudra said. 'Retain market share' "An acquisition that can help them compete more successfully with the likes of global multinational IT services houses such as Accenture, Cap Gemini, IBM, is something they really need," said Rudra, who has maintained a sell rating on Infosys since January 2011. "Their visibility across the IT services value chain will increase, their ability to gain and retain market share will be enhanced." (Follow timesofoman.com on Facebook and on Twitter for updates that you can share with your friends.) (c) 2012 Muscat Press and Publishing House SAOC Provided by Syndigate.info an Albawaba.com company |