New Delhi: Yet another sign of India Inc spreading its wings towards global mergers and acquisitions. Indian tech biggie Infosys is rumoured to be mulling over acquiring Europe's largest IT consultant firm Capgemini.
If such a deal happens, it would make strategic sense for Bangalore-based Infosys, which doesn’t have a strong consulting outfit, and is looking to plug that gap.
Infosys management has said in the past that they’re looking at acquisitions as a means to break into new markets. And Europe, with its high growth rates and the advantage of a currency that is strong against the rupee, unlike the dollar, is a region that Indian tech firms are eager to tap into.
The rumours doing rounds on the trading floors of Europe pushed Capgemini's stock to a 2 week high at 53.78 Euros. And if the merger is to happen it certainly won't be a merger of equals.
Capgemini is the largest IT company in Europe with a turnover of Rs 42,350 crore in FY07 (year ending December), which is more than three times the revenues of Infosys which stood at Rs 12,699 crore during FY07. But the FY07 net profit for Infosys stood at Rs 3845 crore, which is almost, double that of Capgemini's.
So is it beneficial for Infosys to bid for the company?
Dilip Bhat of Prabhudas Lilladher doesn't read much into the rumour saying “even if Infosys takes over, as it is a part of what all of us have been expecting for some time, it will give them a good boost.” He feels so because the cash that Infosys is holding is otherwise giving them a low return.
If the rumours were to come true, it would take the combined entity of the two companies to $14 billion. Infosys is said to be looking to achieve a topline growth of 28-30 per cent while Capgemini is said to have projected a growth of 8 per cent in 2007.
Harit Shah of Angel Stockbroking feels that it is quite unlikely that Infosys would acquire a company as big as Capgemini as there will be a lot of issues. "First of all the integration of the significantly large workforce of Capgemini, and the company will have to be willing to compromise quite significantly on the margins. The EBITDA margins at Infosys are about 31 per cent whereas for Capgemini it is barely 6 per cent, so they need to really compromise a lot on that front" he adds.
According to the market analysts margins in consulting business is higher than other IT related businesses. If the deal were to happen, Infosys will be competing with other giants in the consulting space.
Ramesh Damani, Member, BSE however feels that it would be viable for both companies to tie up for the BPO segment. "If I were to speculate, it could be a tie-up between Capgemini and Infosys for their BPO arm that would make more sense, because that is a fast growth area and an area where both could help each other"
With excerpts from moneycontrol.com
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