Indian Infotech companies on shopping spree – No credit, all cash!
Nasscom forecasted a 21-24% revenue growth for IT industry till April 2009. This is valued at $50 billion. Not the expected 30% growth, which the industry saw for the past 3 years. I think the final figure would settle down at 20%. Satyam has fired 4500 employees and the same news is expected from other companies. BPO companies are going easy on the hiring part.
Reading this should you be worried? If you said yes then read on.
Infotech is eyeing a $40 billion dollar acquisition in Germany. Satyam has 20000 crores for acquisitions. Satyam and TCS have gained key contracts in Middle East and Europe. Satyam has also acquired land for new facilities in Pune and Vizag. TCS is zeroing on buying the BPO arm (Citigroup global services) of Citibank for $550 million. Symphony Technology Group (STG), the US-based strategic holding company founded by an Indian, plans to invest $900 million (around Rupees 4,230 crore) in acquisitions.
I guess everybody is following the Infosys-Axon-HCL triangular dance. Axon has agreed for a $441 million pound take over by HCL. Infosys, which wanted a SAP exposure through Axon, has to wait. May be HCL has paid a higher price for the company but it has gained key expertise and exposure to European market.
This is not limited to the biggies. Small and mid-sized IT companies are game too. Ahmedabad based iCall has set aside $50 million for a suitable buy. GlobalTech, which provides embedded IT solutions, is looking for suitable acquisitions. This is the Indian acquisition story so far. India is also expecting organic growth from the financial crisis.
US financial majors like Lehman Brothers and others have given a lot of pain to the Indian IT industry. It is estimated that Indian IT industry’s exposure to BFSI is anywhere between 33% to 50%. Given this statistic it is a lot of pain for the industry. But it has also brought cheer to a different vertical called Legal Process outsourcing (LPO). The companies, which filed bankruptcy, have to do a lot of legal work to bring the company down. It will cost a bomb to do that work in the US. Indian lawyers charge only a tenth of what their US counter-parts do. A new industry is born or seeking revival.
Next stop would be the regulation. The debacle of Enron and WorldCom in the US has led to a new regulation in terms of corporate governance. Sarbanes Oxley, which forces the companies to go through stiffer regulations, has made the companies go through a lot of work. It is only prudent for the US government to enforce some stiffer regulations for the financial companies and corporations in general. They should teach their organizations on how to use credit and oversee that. Many Indian BPO firms are already betting big on the new regulations, which are not even in talks.
The global accounting will see a sea change in their procedures. Indian BPO firms, which do the outsourcing work in the accounting vertical, are really optimistic about the new work they will be getting. India has the first mover advantage in terms of IT infrastructure and ecosystem. It would be hard for the west to look beyond India for outsourcing this kind of work.
If round one went to Tata for million dollar acquisitions round 2 will be going to Indian IT industry which is sitting on a pile of cash.
This looks like a tasty Indian khichidi just in for the Diwali time. The constituents to make the khichdi (accidental though) are as follows:
- Firing employees
- Falling stock prices
- Buying land
- Shopping companies
- Developing new verticals
- Bringing more business with the new acquisitions
- Keeping share holders happy
The khichdi took just 2 months. I think that is too much activity for any CEO. Our Indian IT CEO’s need a nice massage and a big break.
Yeah…I think the negative sentiments in the market about IT sector is a little too negative…
IMHO, the valuations are great right now as a buying opportunity…
Yeah thats all these companies do – a khichadi..
Satyam Computers have been very irresponsible by firing employees in thousands .. they canceled campus placements in huge numbers as well