Deepak Padaki, Infosys? mergers and acquisitions head, is in demand these days. The man has been having a series of closed-door meetings with the company?s top management of late, and the deliberations continued on Tuesday as well.
India?s second-largest software exporter, sitting on cash reserves of over $4 billion, has been severely criticised by analysts and investors for its conservative approach towards acquisitions. But with Padaki now in the thick of things, investors are hoping for a big announcement soon.
Sanjeev Hota, IT analyst with ShareKhan, told FE that there is no better time than now for the company to close out an acquisition. ?It?s high time. Infosys has always believed in organic growth, but it needs to change track now. With companies like Cognizant adopting an aggressive stance, Infosys has to grow inorganically to keep ahead. It should use at least R5,000 crore of its reserve cash to fund acquisitions.?
Dipen Shah, IT analyst at Kotak Securities, said, ?For a company like Infosys, any time is good for acquisitions. But this is the best time, as valuations are not high. KV Kamath (Infosys chairman) has already been on board for over a year, and it?s time he infuses the aggression that he was so famous for at ICICI Bank into the company.?
On Tuesday, Kamath told a television news channel that the Infosys board has ?articulated the need for inorganic growth?.
Shah told FE that he expected Infosys to look at a target in the products and platform space. ?It could look at multiple, medium-sized deals in this area,? he said. This was seconded by a Motilal Oswal report, which stated acquisitions in the product space can address the issue of further scalability.
Brokerage house Prabhudas Lilladher in its research noted June 18 said the time is most appropriate for an acquisition. ?The management has cited urgency for an inorganic route to build non-linear momentum. The size of the acquisition is likely to be between $100 million and $200 million,? it stated.
A senior official with a leading IT firm said Infosys will find it difficult to get a suitable acquisition target that will match its operating margins. ?Unlike other firms, Infosys has not done too many large acquisitions so they do not have the culture of integrating companies,? he said.
Brokerage houses have predicted that Infosys will declare flattish growth in revenue on a sequential basis in dollar terms, when it announces its first quarter results on July 12. Analysts aren?t ruling out a further drop in annual revenue guidance.
Other Indian IT companies, too, are unlikely to cheer up the markets when they announce the first quarterly results. Cross-currency headwinds, poor order inflow and continuing slowdown in key geographies like the US and Europe are expected to curb earnings. All top-tier IT firms are likely to post low single digit growth in dollar revenue, sequentially.
Macquarie Equities Research has downgraded the Indian software services sector to ?underweight? from ?overweight?.