Top Indian IT cos to tide over slump

11 19 08'

Written by Team iPOTT

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At a time when customers in the US and Europe are tightening their IT budgets, leading Indian tech firms are betting on their huge pile of cash to steer through the global economic crisis and also to explore M&A opportunities in a world reeling under severe liquidity crunch.

Each of the top six Indian software services firms—TCS, Infosys, Wipro, Satyam, HCL Technologies and Cognizant—have cash reserves in excess of $500 million, with Infosys topping the list at $1.8 billion.

This gives these firms flexibility to invest in newer opportunities including M&A possibilities. A comfortable liquidity position is a great resource to quickly acquire a distressed asset, points out Dr T R Madan Mohan, managing partner of Browne & Mohan, a Bangalore-based consultancy firm. Given the global turbulence, many acquisition targets could come at attractive valuations.

“A strong liquidity position is a comfort factor not just for a company, but also for clients and employers,” says Infosys chief financial officer V Balakrishnan. “This also allows for making the right kind of investment in the current context be it an acquisition, new services portfolio or creating technology solutions.”

And it’s not just the top six, even mid-tier companies are looking to leverage their cash reserves for M&A opportunities. Patni Computer Systems, with around $270 million in cash, is one such company that’s eyeing M&A opportunities. “Cash is a premium in these tough times, and it will come handy,” says Patni chief financial officer Surjeet Singh. The company is currently evaluating several firms in Europe for making an acquisition.
Many other mid-tier companies including MindTree Consulting, which acquired Bangalore-based Aztecsoft in May this year for around $90 million, might look at smaller acquisitions for topline growth. Typically around 10-12% of a company’s topline translates into cash reserves for the IT companies. However, the cash reserves could also be a misleading number as many of these companies have invested in assets which has the potential to generate a negative returns like the fixed maturity plans of mutual funds or treasury investments.

Courtesy The Economic Times

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