The Hindu Business Line : Infosys scouting for buys in Europe, US

US slowdown fallout
European cos more open to outsourcing today
Revenues from Europe are up at 29.3%.
To pitch for high-end work in mature geographies

Archana Venkat

Chennai, April 17

Owing to economic slowdown and consequently lower valuations, Infosys Technologies is eyeing acquisitions in Europe or US. Speaking to Business Line, Mr T.V. Mohandas Pai, Member of Board and Director- Human Resources, Education and Research and Administration, Infosys, said the company was looking at acquiring firms in the BFSI, communication or manufacturing space. “We are focusing on adding vertical expertise, and not capacity building,” he said, without sharing any other details. For the year ended March 2008, the company had Rs 6,429 crore as cash and bank balance.

Infosys’ first acquisition was in Australia where it bought 100 per cent stake in Expert Information Services for about $22.9 million (Rs 92 crore). The company was renamed Infosys Technologies (Australia) Pvt Ltd. The company signed a $250 million seven-year deal to acquired three captive BPOs from the Netherlands-based Philips NV, including three shared centres in India, Poland and Thailand.

When asked if the effects of slowdown were now visible beyond the BFSI vertical, Mr Pai, who was in the city last week, said the retail sector was affected as sales were down. He did not wish to comment on whether this was also impacting the retail deal Infosys inked with a “large retailer” last quarter. “There is a feeling that the slowdown may turnout to be a ‘main street’ problem. After all, $200 billion has been written off so far,” he said.

Mr Pai said the rupee would get stronger, unless the US solved its fiscal and budget deficit issues, and that Infosys was geared to do business in such a climate. “We can manage a 3-5 per cent rupee appreciation year-on-year for the next 3-4 years. But last fiscal the rupee rose by 13- 15 per cent making things tight. As long as such sharp rise does not occur, we will continue to deliver results.”

Focussed on Europe

To offset the effects of the slowdown and rupee appreciation, the company would be more focused on Europe this fiscal. “We are growing at 35-40 per cent in Europe and the market there is more open to outsourcing today than a few years ago. Additionally, the increase in value of Euro compared to the dollar (1.58 vs 1.56) has made Euro imports more competitive for IT companies,” Mr Pai said. For the year ending March 2008, Europe contributed 29.3 per cent to revenues as compared to 26.6 per cent the previous fiscal.

In the US and other mature geographies, Infosys would bid for ‘transformational deals’ that form the higher end of the outsourcing value chain. “We are focusing on selling value and will price our services accordingly,” he said.

When asked if moving work to the company’s China centre could ease margins in future (the Yuan has appreciated against the US dollar less than the Indian rupee has), Mr Pai said clients were still uncomfortable moving business to China. “Growth is challenged. However, we are close to break-even in China in terms of headcount and have hired 750 people so far,” he said. Currently, Chinese operations are making losses of about $3 million and no turnaround is expected this fiscal. Infosys runs BPO operations for global clients out of China and offers IT services for local clients.

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