April 29, 2012 5:18 pm

Infosys plans international acquisitions

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Infosys, India’s second-largest IT and software group by revenue, is planning international acquisitions and a renewed focus on “bread and butter” outsourcing amid growing concerns over weak results and wayward strategy.

Shares in Infosys dropped sharply following a reduced earnings forecast earlier this month, while analysts have attacked a strategy they describe as attempting to win high-end business at the expense of increasing revenues.

The recently appointed chief executive S.D. Shibulal rejected the accusations while highlighting plans to expand aggressively into new markets, with potential acquisitions in continental Europe and Japan and even moves to grow within India itself.

“We are definitely looking at opportunities for inorganic expansion,” he said, “towards either a deeper integration in a country or a deep capability being built, or an intellectual property being acquired.”

Mr Shibulal is the latest of Infosys’ seven founders to lead the firm as it faces arguably its toughest challenge in three decades of operation, having lost ground to market leader Tata Consultancy Services and facing the risk of being overtaken for second place by newcomer Cognizant this year.

Infosys faced sharp criticism following results this month, which warned of lower than expected revenue forecasts for this financial year of $7.5bn-$7.7bn, and included an unusual open letter from a respected Mumbai-based analyst at brokerage CLSA. The analyst questioned the group’s increasing focus on high-margin deals and its lack of clarity over plans to deploy its more than $4bn cash reserves.

In response Mr Shibulal stressed that the company remained committed to winning low-end “bread and butter” operational work, in addition to the more specialised consulting contracts that pit the Indian group against the like of IBM and Accenture.

“We are very focused on winning large outsourcing deals and we have at any point in time about 12 deals in progress,” he said, “but I want to be categorically clear. We will continue to grow both lines of our business”.

As with most Indian IT groups Infosys earns the vast majority of its revenues in North America and Europe, where it has suffered as its main clients in areas such as financial services have delayed or reduced spending in the face of tough economic conditions.

Mr Shibulal said the group would also renew its focus on emerging markets, including a new push for business in India itself, a country that has traditionally provided slender pickings for a homegrown outsourcing industry with global revenues projected to top $100bn this year.

“India is starting to do well for us, although from a low base” he said, “Although we have always believed that our traditional services model will not apply in this market, so we have had to devise other models for India.”

He highlighted an income tax processing centre in Bangalore, owned and operated by the group, with revenue earned from the state for each income tax form processed, as an example of a model suited to the Indian market.

Yet, while admitting that Infosys had undergone a period of transition and strategic review since his appointment in August 2011, Mr Shibulal said he remained confident that the group would begin to recover towards the end of this year.

“Strategies don’t create overnight success. Strategies are meant for the long term. They take time to execute,” he said. “You don’t revisit a strategy because of events which converge on one quarter.”

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