The Wall Street Journal-20080112-Earnings Digest -- Technology- For Infosys- Finding Deals Is Slow Going- Indian Tech Titan- Flush With Cash- Posts Strong Results
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Earnings Digest -- Technology: For Infosys, Finding Deals Is Slow Going; Indian Tech Titan, Flush With Cash, Posts Strong Results
Indian technology titan Infosys Technologies Ltd. is flush with cash and on the acquisition trail. But nailing down friendly deals is proving to be a tough task, according to its chief executive and managing director, S. Gopalakrishnan.
"[It's] hard to get everything aligned and satisfied," Mr. Gopalakrishnan said in an interview. "There are companies out there -- the only thing is they may not want to be acquired, or the valuation may be too high."
Mr. Gopalakrishnan's comments came as Infosys reported a better- than-expected 25% year-on-year increase in its fiscal-third-quarter net profit and increased its earnings forecast for the year ending March 31.
Infosys's performance and forecast could help moderate fears that a likely slowdown in the U.S. economy could hurt the company's revenue and profit -- and that of other big Indian tech outfits. Tech-industry analysts worry that a weaker global economy will increase pricing pressure on tech concerns, as U.S. companies cut their technology budgets. The rupee, which has appreciated 12% against the dollar since January 2007, also erodes the value of Infosys export revenue, which is mainly in dollars.
As India's second-largest tech and outsourcing company by revenue after Tata Consultancy Services Ltd., Infosys' earnings help set the tone for India's tech sector. Infosys's Bombay Stock Exchange-listed shares closed at 1,580.10 rupees ($40.32) Friday, down 1.4%.
Infosys wants to buy businesses to beef up the array of services it can offer clients and to move up the value chain by doing higher- margin consulting work. It also wants to expand its geographical reach, particularly in continental Europe, reducing its dependence on dollar-based revenues and widening its client base.
There are only a small number of companies that fit Infosys's wish list, Mr. Gopalakrishnan said. To cut the kind of deal Infosys wants, the target company needs to have annual revenue of $50 million to $300 million, and employ 1,000 to a maximum of 2,000 people.
Infosys isn't interested in doing hostile deals, according to Mr. Gopalakrishnan. Valuation must also be right. In some acquisitions, prices are being driven up by competition from other Indian firms, Mr. Gopalakrishnan said. For example, India's No. 3 tech and outsourcing company, Wipro Ltd., is also eager to grow in Europe and has bought businesses in Austria and Finland.
Infosys has about $2 billion in cash or cash equivalents, which could be used for deals. "We have the money available for one, or two, or more, or a significantly larger acquisition, if need be," Mr. Gopalakrishnan said.
Infosys has no plans to take on debt to spend more on deals, he added.
Another Infosys option under consideration is buying businesses from its clients, as part of outsourcing deals. Last July, as part of a $250 million outsourcing contract with electronics-manufacturing company Philips Electronics NV of Amsterdam, Infosys paid $28 million to buy three service centers in India, Poland and Thailand from its client.
Infosys, which is also listed on the Nasdaq Stock Market, had third- quarter net sales of 42.71 billion rupees, up 17% from 36.55 billion rupees a year earlier, helped by the addition of 47 new clients and improving prices.
Consolidated net profit for the three months ended Dec. 31 rose to 12.31 billion rupees, up 25% from 9.83 billion rupees a year earlier, driven by strong growth in outsourcing orders.
Infosys also raised its full-year revenue forecast slightly to between 166.3 billion rupees and 166.5 billion rupees, up from an earlier range of 165.9 billion rupees to 166.5 billion rupees.
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Romit Guha contributed to this article.
