The Hindu Business Line : IT majors prefer to park cash with Indian banks

BL Research Bureau The Satyam debacle has raised questions on the real cash position of Indian IT majors and where these companies really park their cash. Even as doubts are being raised about whether Satyam’s cash balances really existed at all, deposits with Indian banks seem to be the preferred mode of parking cash for the IT majors.

Of the top five companies, TCS, Wipro and HCL Technologies appear to take a more active approach to managing their surplus cash than Satyam (if its reported numbers are to be taken).

Satyam Computer’s balance sheet in March shows Rs 3,332 crore in scheduled banks in India, mainly in the form of deposits. Infosys, which has the highest cash among peers in its books, held Rs 5,913 crore, mainly as deposits with domestic banks in March 2008.

But TCS, largest IT company, prefers to park Rs 623.9 crore, nearly half its cash balance, in overseas banks. This may be due to a higher working capital requirement in overseas locations.

liquid funds

Wipro, TCS and HCL Technologies invested substantial sums in liquid funds, long-term funds, fixed maturity plans, money market instruments and the like in 2007-08, preferring not to hold their entire surplus in banks. These figures range between Rs 1,200-2,500 crore.

TCS and HCL Technologies increased mutual fund investments in 2007-08, while Wipro has reduced investments. Infosys also purchased and sold investments, mainly liquid mutual funds worth Rs 1,518 crore, during 2007-08 so that investments were drawn down to zero and cash balances were restored by the end of the fiscal. Not surprisingly (as its cash balances were probably non-existent), Satyam has not made liquid funds investments at all.

Recent buys

However, investors should also note that recent acquisitions by IT majors may have drawn down the above cash balances. Wipro had a $1.3-billion cash balance as of September 2008. It acquired Citi Technology Services for $127 million in an all cash deal.

That does not deplete the books by much. But TCS, which has $295 million as cash and $587 million in investment, would have seen a dent in its cash reserves after the acquisition of Citigroup Global Services for $515 million. The HCL-Axon deal was funded mainly through debt, leaving its cash reserves intact.

More Stories on : Software | Fixed Deposits | Mergers & Acquisitions

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page