IT giants sit on huge cash pile

Mumbai: Indian IT companies are sitting on huge pile of cash with top four companies together hold Rs 96,200 crore on their books. Analysis of balance sheet show that Infosys top the list with the highest cash hoard of Rs 33,200 crore followed by TCS with Rs 31,900 crore, while Wipro and HCL Tech got Rs 19,200 crore and Rs 11,900 crore, respectively.

With the growth outlook remaining muted investors are wondering what these companies are going to do with this enviable cash hoards to boost shareholder value.

For these companies, percentage of market cap to net cash remains quite high. In case of Wipro percentage of market cap to net cash stood at 16 per cent, followed by Infosys’ 13.5 per cent, while in case of TCS and HCL Tech figure stood at 6.6 per cent and 10.2 per cent, respectively.

Most of the IT stocks have taken a beating lately underperforming the broad market in a big way. Investors are now questioning the logic of keeping huge cash pile on the books.

Traditionally Indian IT companies have shied away from major acquisitions. There were not many big ticket acquisitions in the overseas market from the Indian IT firms.  

Though there could be overseas M&A potentials, these companies are more conservative in outbound acquisition. Most of the acquisitions were in the sub-$100 million range.

Some of the companies that have acquired companies abroad are still struggling with integration issues. According to analysts, acquisition strategy of companies will be largely driven by their quest for gaining niche technologies and newer capabilities rather than revenue growth and scale. “As the technology landscape is changing rapidly, acquisitions might help companies to quickly add new capabilities,” said an analyst with a leading domestic brokerage.

And the trend has already started. Infosys has made three acquisitions last year under the leadership of CEO and MD Vishal Sikka, the first non-founder to be at the helm of the second largest IT firm in the country.

Under Sikka, M&A is going to be a major strategy for future growth. The company, which has made just 10 acquisitions since its inception in 1981, is now seriously looking at M&A as a growth strategy.

Infosys has said that its focus would be renewing the existing business and service lines with use of newer technologies such as artificial intelligence, analytics and automation as well as getting into newer areas.

And as part of this strategy, It has said it will acquire niche technology companies to improve efficiency of the existing business and gain ability to cross sale the offerings better. Since the start of 2015, Infosys has spent $390 million in buying three companies.

In April 2015, Infosys had acquired Kallidus, a digital and mobile commerce solutions provider that operates under the brand name Skava, for a total consideration of $120 million ('763 crore).